Resource title

Social Identity and Group Lending

Resource image

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Resource description

The success of joint liability programs depends on nature and composition of borrowing groups. Group formation is a costly process and in our model these costs vary with the social identity of group partners. We show that risk heterogeneity in a borrowing group may arise due to the social identity of the agents. The presence of caste and gender bias may not resolve the adverse selection and moral hazard problems created by information asymmetry between the borrowers and the lender. We also find that with costly group formation and state verification, individual liability lending may be better than joint liability lending. Thus ignoring social identity and group formation costs can lead to the failure of a joint liability program. Finally, the paper also suggests that targeting different social groups requires the use of a menu of joint liability costs.

Resource author

Prabirendra Chatterjee, Sudipta Sarangi

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/18101

Resource license

Adapt according to the presented license agreement and reference the original author.