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Category: Micro

Can Better Forms of Personal Identification Improve the Functioning of Credit Markets?

From a new working paper by Xavier Giné, Jessica Goldberg, and Dean Yang:

We report the results of a randomized field experiment that examines the credit market impacts of improvements in a lender’s ability to determine borrowers’ identities. Improved personal identification enhances the credibility of a lender’s dynamic repayment incentives by allowing it to withhold future loans from past defaulters and expand credit for good borrowers. The experimental context, rural Malawi, is characterized by an imperfect identification system. Consistent with a simple model of borrower heterogeneity and information asymmetries, fingerprinting led to substantially higher repayment rates for borrowers with the highest ex ante default risk, but had no effect for the rest of the borrowers. The change in repayment rates is driven by reductions in adverse selection (smaller loan sizes) and lower moral hazard (for example, less diversion of loan-financed fertilizer from its intended use on the cash crop).

Gender Differences in Agricultural Productivity

This week in my development seminar, we discussed the agricultural household, an economic agent that encompasses is both a producer and a consumer. We then discussed intrahousehold allocations. That is, the distribution of resources within the household, and whether that distribution is efficient.

As part of that discussion, we discussed Udry (1996), a paper every student of development economics is familiar with. Whereas one would expect men and women to be equally productive on their respective plots within the household, Udry finds that in Burkina Faso, men are more productive than women at the margin when controlling for a host of confounding factors.

In practical terms, this means that the land within the average household could be redistributed from women to men to increase household productivity, which falls about 6 percent short of what it could be due to the gender differences in agricultural productivity. More generally, this constitutes a rejection of the hypothesis that the distribution of resources within the household is efficient as well as a rejection of the hypothesis that the preferences of the individuals within the household can be represented by the preferences of a single individual.

I was thus surprised last spring when I read in Ed Carr’s Delivering Development that he’d found that in Ghana, the gender difference went the other way around, i.e., women are more productive than men. Indeed, in chapter 4, Ed writes:

This decision-making becomes even more problematic when we consider the relative agricultural productivity of men and women in Dominase and Ponkrum. My research suggests that women in these villages are between two and three times more productive than their husbands, in terms of income per hectare. While to some extent this is a result of the fact that women farm much less land and therefore can crop it much more intensely than their husbands can their lands, this higher productivity is apparent even when women’s farms increase in size.

Of course, this would need to be subjected to the proper empirical specification and to a battery of statistical tests, but assuming the finding holds, it would be interesting to compare the two countries given that Burkina Faso and Ghana share a border. Is the change in gender differences due to different institutions? Different crops? I’m sure Ed will chime in with a bit more discussion in the comments below.

Pretending to Be Poor

This is the title of a new paper in Economic Development and Cultural Change by Jean-Marie Baland, Catherine Guirkinger, and Charlotte Mali. Because EDCC does not publish abstracts, here is the abstract of a previous version:

“From field observations of credit cooperatives in Cameroon, we find that a substantial number of members take loans that are fully collateralized by savings they held in the same institutions. 20% of the loans observed fall into this category. The price paid in terms of net interest payments is not negligible as it represents 13% of the amount borrowed. As traditional arguments such as credit rating or time inconsistent preferences cannot explain such behavior in our specific setting, we propose a new rationale based on in-depth interviews with members of the cooperatives. Those interviews indicate that some members systematically use credit as a way to pretend that they are too poor to have available savings. By doing so, they can successfully oppose request for financial help from friends and relatives. We develop a signaling model to analyze the conditions under which this behavior is an equilibrium outcome.”