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American Economic Review: Vol. 102 No. 2 (April 2012)

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Behavioral Foundations of Microcredit: Experimental and Survey Evidence from Rural India

Article Citation

Bauer, Michal, Julie Chytilová, and Jonathan Morduch. 2012. "Behavioral Foundations of Microcredit: Experimental and Survey Evidence from Rural India." American Economic Review, 102(2): 1118-39.

DOI: 10.1257/aer.102.2.1118

Abstract

We use experimental measures of time discounting and risk aversion for villagers in south India to highlight behavioral features of microcredit, a financial tool designed to reduce poverty and fix credit market imperfections. The evidence suggests that microcredit contracts may do more than reduce moral hazard and adverse selection by imposing new forms of discipline on borrowers. We find that, conditional on borrowing from any source, women with present-biased preferences are more likely than others to borrow through microcredit institutions. Another particular contribution of microcredit may thus be to provide helpful structure for borrowers seeking self-discipline. (JEL G21, I38, O15, O16, O18)

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Authors

Bauer, Michal (Charles U Prague and CERGE-EI, Prague)
Chytilová, Julie (Institute of Economic Studies, Charles U Prague)
Morduch, Jonathan (NYU)

JEL Classifications

G21: Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
I38: Welfare and Poverty: Government Programs; Provision and Effects of Welfare Programs
O15: Economic Development: Human Resources; Human Development; Income Distribution; Migration
O16: Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
O18: Economic Development: Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure


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