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Category: Micro

Published January 19, 2012

Microfinance and Social Networks

From a recent NBER working paper by Banerjee et al.:

We examine how participation in a microfinance program diffuses through social networks. We collected detailed demographic and social network data in 43 villages in South India before microfinance was introduced in those villages and then tracked eventual participation. We exploit exogenous variation in the importance (in a network sense) of the people who were first informed about the program, “the injection points”. Microfinance participation is higher when the injection points have higher eigenvector centrality. We estimate structural models of diffusion that allow us to (i) determine the relative roles of basic information transmission versus other forms of peer influence, and (ii) distinguish information passing by participants and non-participants. We find that participants are significantly more likely to pass information on to friends and acquaintances than informed non-participants, but that information passing by non-participants is still substantial and significant, accounting for roughly a third of informedness and participation. We also find that, conditioned on being informed, an individual’s decision is not significantly affected by the participation of her acquaintances.

The emphasis is mine, for those of you who want the news they can use.

I have not yet had a chance to read this paper, but I believe it is part of a trend away from pure impact evaluation and toward the investigation of causal mechanisms — the key words in the abstract being “structural models of diffusion.”

Published January 11, 2012

Insecure Land Rights, Land Tenancy, and Sharecropping

Lac Alaotra, the "Rice Bowl" of Madagascar.

My job-market paper — for nonacademics, that’s the paper I presented when giving recruitment seminars when I was on the job market back in 2006 — is finally published.

From the latest issue of Land Economics:

Most studies of tenurial insecurity focus on its effects on investment. This paper studies the hitherto unexplored relationship between tenurial insecurity and land tenancy contracts. Based on distinct features of formal law and customary rights in Madagascar, this paper augments the canonical model of sharecropping by making the strength of the landlord’s property right increasing in the amount of risk she bears within the contract. Using data on landlords’ subjective perceptions in rural Madagascar, empirical tests support the hypothesis that insecure property rights drive contract choice but offer little support in favor of the canonical risk sharing hypothesis.

After working on this on and off for almost ten years, I am glad to finally see this article in print.

Continue readingInsecure Land Rights, Land Tenancy, and Sharecropping
Published December 14, 2011

Payday Loans and Microfinance

Consider the fuss that people now make about microcredit — small loans, often at interest rates well above 50 per cent a year that are said to help the very poorest families manage their finances and even become entrepreneurs. That’s a story that many people are happy to accept without examining the evidence, while at the same time condemning payday loans, which appear to be a similar product. Are you sure [that’s] not just reflecting a prejudice that credit-starved Bangladeshis are heroic would-be entrepreneurs while credit-starved westerners must be trailer trash?

That’s Tim Harford, in a post on whether payday lending is wrong.

Each fall, when I teach the students in my development seminar about credit rationing, I tell them “If you think credit rationing is a developing-country phenomenon, think again.” I then encourage them to drive up North Roxboro Street north of I-85 to see how the market responds to failures of the credit market in Durham.