1,720,995 research outputs found
Reciprocity in Groups and the Limits to Social Capital.
No full textRobert Putnam defines social capital as “features of social organization, such as networks, norms and social trust that facilitate coordination and cooperation” (Putnam 1995: 67). Such networks are typically associated with norms that pro-mote coordination, cooperation and reciprocity for the mutual benefit of network members. These norms, coupled with the appropriate use of sanctions in case of noncompliance, are often thought to enable these groups to deal smoothly and effectively with multiple social and economic issues. At the same time, some au-thors have noted that strongly bonded groups may have adverse consequences for others (see, for instance Alejandro Portes and Patricia Landolt, 1996) or even for themselves (see for instance George Akerlof, 1976, or Kaushik Basu, 1986). It is this latter aspect that we wish to emphasize in these notes. Based on our earlier work on risk sharing in groups and networks (Garance Genicot and Debraj Ray, 2003, 2005 and Francis Bloch, Garance Genicot and Debraj Ray, 2006), this paper proposes a simple model of mutual help in groups and networks. We argue that, if social capital can promote cooperation among groups of indi
Repayment Frequency in Micro…nance Contracts with Present-Biased Borrowers We would like to thank
No full textAbstract This paper analyzes the theoretical underpinnings of high-frequency repayment, a feature in nearly all micro…nance contracts that has been largely overlooked by theorists. The pervasive belief among practitioners that frequent repayment is critical in achieving high repayment rates is puzzling. Classically rational individuals should bene…t from more ‡exible repayment schedules, and less frequent repayment should increase neither default nor delinquency. This paper proposes a simple explanation based on present bias. For such individuals, more frequent repayment can increase the maximum incentive compatible loan size. However, the welfare effects are ambiguous. More frequent repayment can lead to over-borrowing, reducing welfare as it increases loan sizes. Keywords: Micro…nance, Repayment Frequency, Present-Bias JEL Codes: O12, O16, D03 We would like to thank Christian Ahlin, Jean-Marie Baland, Karna Basu, Tim Besley, Garance Genicot, Xavier Giné, Rocco Macchiavello, Matt Rabin, Imran Rasul, Miriam Sinn, and several seminar audiences for helpful feedback. Special thanks are due to Debraj Ray for very helpful suggestions. The usual disclaimer applies
Repayment Frequency in Micro…nance Contracts with Present-Biased Borrowers We would like to thank
No full textAbstract This paper analyzes the theoretical underpinnings of high-frequency repayment, a feature in nearly all micro…nance contracts that has been largely overlooked by theorists. The pervasive belief among practitioners that frequent repayment is critical in achieving high repayment rates is puzzling. Classically rational individuals should bene…t from more ‡exible repayment schedules, and less frequent repayment should increase neither default nor delinquency. This paper proposes a simple explanation based on present bias. For such individuals, more frequent repayment can increase the maximum incentive compatible loan size. However, the welfare effects are ambiguous. More frequent repayment can lead to over-borrowing, reducing welfare as it increases loan sizes. Keywords: Micro…nance, Repayment Frequency, Present-Bias JEL Codes: O12, O16, D03 We would like to thank Christian Ahlin, Jean-Marie Baland, Karna Basu, Tim Besley, Garance Genicot, Xavier Giné, Rocco Macchiavello, Matt Rabin, Imran Rasul, Miriam Sinn, and several seminar audiences for helpful feedback. Special thanks are due to Debraj Ray for very helpful suggestions. The usual disclaimer applies
Aspirations and Inequality
No full textAbstract This paper develops a theory in which ambient income distributions shape individual aspirations, which in turn affect the investment incentives of individuals. Through its impact on investments, aspirations in turn affect the ambient income distribution. Thus aspirations and the distribution of income evolve jointly, and in many situations in a selfreinforcing way. We study the consequences of this theory for income distribution and growth. We argue that distribution of income cannot converge to perfect equality over time. When segments of the population share the same aspiration, there is clustering of steady state income distributions around local poles. Finally, the theory has predictions for the growth rates along the cross-section of income. In particular, the theory captures both the complacency stemming from low aspirations and the frustration resulting from aspirations that are too high. JEL Classification Numbers: J62, D9, O15, 040
BARGAINING POWER AND ENFORCEMENT IN CREDIT MARKETS
No full textAbstract. In a credit market with enforcement constraints, we study the effects of a change in the outside options of a potential defaulter on the terms of the credit contract, as well as on borrower payoffs. The results crucially depend on the allocation of “bargaining power ” between the borrower and the lender. We prove that there is a crucial threshold of relative weights such that if the borrower has power that exceeds this threshold, her expected utility must go up whenever her outside options come down. But if the borrower has less power than this threshold, her expected payoff must come down with her outside options. In the former case a deterioration in outside options brought about, say, by better enforcement, must create a Lorenz improvement in state-contingent consumption. In particular, borrower consumption rises in all “bad ” states in which loans are taken. In the latter case, in contrast, the borrower’s consumption must decline, at least for all the bad states. These disparate findings within a single model permit us to interpret existing literature on credit markets in a unified way
Aspirations and Inequality
No full textAbstract The premise of this paper is twofold. First, people's aspirations for their future wellbeing (or that of their children) affect their incentives to invest. Second, the experiences of others help shape one's aspirations. This paper marries a model of aspirations-based choice with a simple theory of aspirations formation to study the relationship between aspirations and the distribution of income. Through its impact on investments, aspirations affect economic mobility and the income distribution, which in turn shape aspirations. Thus aspirations, income, and the distribution of income evolve jointly, and in many situations in a self-reinforcing way. We study the consequences of this model for income distribution as well as for growth rates over different quantiles of the distribution. We show that extreme equality is unstable. Moreover, when the same aspirations are shared in a society, polarization arises. The theory we propose captures both the complacency stemming from low aspirations and the frustration resulting from aspirations that are too high. As a result, for commonly held aspirations, growth rates have an inverted U-shape along the income distribution. JEL Classification Numbers: J62, D9, O15, 040
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