Matching for credit: Identifying information asymmetries in joint-liability lending


Klein, Thilo


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URN: urn:nbn:de:bsz:180-madoc-688219
Document Type: Working paper
Year of publication: 2024
The title of a journal, publication series: ZEW Discussion Papers
Volume: 24-070
Place of publication: Mannheim
Edition: 1915477204
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: C11 , C31 , C34 , C36 , C78 , C57 , D02 , D47 , D82 , G21 , O16 , Q14,
Keywords (English): microcredit , joint liability , diversification , market design , stable matching , endogeneity , selection model , agriculture , Thailand
Abstract: Microcredit, a financial tool providing uncollateralized loans to low-income individuals, has seen a shift from joint-liability (JL) to individual liability (IL) lending models. This article tests a theory explaining this shift, focusing on borrowers matching into groups exposed to similar economic shocks under JL, diminishing its effectiveness. I reconcile conflicting theoretical predictions and propose an empirical strategy to distinguish adverse selection from moral hazard effects. Using data from Thailand, I find that increasing diversity within borrower groups leads to a 10 percentage point improvement in timely repayment. These results inform contract design and strategies to reduce information asymmetries in lending practices.




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