Asymmetric group loan contracts: Experimental evidence
Carli,Francesco Suetens,Sigrid Uras,Burak Visser,Philine
Carli,Francesco
Suetens,Sigrid
Uras,Burak
Visser,Philine
Abstract
We design an experiment to study the effect of asymmetry in the context of group lending with joint liability. The performance of group loan contracts crucially hinges on borrowers engaging in peer monitoring and the common practice is to offer participants of a group loan symmetric contract terms. Our experiment shows that asymmetric contracts, in which monitoring is a dominant strategy for one borrower, increase the monitoring rate, and thus the repayment rate, without leaving borrowers substantially worse off. In addition, asymmetric contracting also raises expected profits of the lending institution. Overall, our experiment reveals that asymmetric group loan contracts are worth considering as part of a policy to maintain both financial stability and higher lender profits.
Description
Date
2025-05
Journal Title
Journal ISSN
Volume Title
Publisher
Research Projects
Organizational Units
Journal Issue
Keywords
C91, C92, G21, O16, Asymmetric contracts, Coordination game, Crowdfunding, Group loan contracts, Joint liability, Laboratory experiment, Microfinance, C91 - Laboratory, Individual Behavior, C92 - Laboratory, Group Behavior, G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages, O16 - Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance, SDG 1 - No Poverty, SDG 8 - Decent Work and Economic Growth
Citation
Carli, F, Suetens, S, Uras, B & Visser, P 2025, 'Asymmetric group loan contracts : Experimental evidence', Journal of the Economic Science Association-JESA, vol. 11, no. 2, pp. 270-278. https://doi.org/10.1017/esa.2025.10024
License
info:eu-repo/semantics/openAccess