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Psychological and social motivations in microfinance contracts: Theory and evidence

Sanjit Dhami Orcid Logo, Junaid Arshad Orcid Logo, Ali al-Nowaihi

Journal of Development Economics, Volume: 158, Start page: 102912

Swansea University Author: Junaid Arshad Orcid Logo

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DOI (Published version): 10.1016/j.jdeveco.2022.102912

Abstract

We study, theoretically and empirically, the effort choices of microfinance borrowers under individual liability (IL) and joint liability (JL) contracts when loan repayments are made either privately or publicly. Our theoretical model identifies guilt aversion in a JL contract and shame aversion und...

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Published in: Journal of Development Economics
ISSN: 0304-3878
Published: Elsevier BV 2022
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URI: https://cronfa.swan.ac.uk/Record/cronfa62256
first_indexed 2023-01-03T18:27:52Z
last_indexed 2024-11-14T12:20:37Z
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spelling 2023-08-30T12:05:09.0704125 v2 62256 2023-01-03 Psychological and social motivations in microfinance contracts: Theory and evidence 97a3e6ef2f020ad96eb92185cc8727d4 0000-0002-8452-4455 Junaid Arshad Junaid Arshad true false 2023-01-03 SOSS We study, theoretically and empirically, the effort choices of microfinance borrowers under individual liability (IL) and joint liability (JL) contracts when loan repayments are made either privately or publicly. Our theoretical model identifies guilt aversion in a JL contract and shame aversion under public repayment of loans as the main psychological drivers of effort choice. Evidence from our lab-in-the-field experiment in Pakistan reveals large treatment effects and confirms the central roles of guilt and shame. Under private repayment, a JL contract increases effort by almost 100% relative to an IL contract. Under public repayment, effort levels are comparable under IL and JL contracts, indicating that shame aversion plays a more important role than guilt aversion. Under IL, public repayment relative to private repayment increases effort by 60%, confirming our shame-aversion hypothesis. Under JL, the private versus public repayment contrast shows that shame trumps guilt in explaining borrowers’ effort choices. Journal Article Journal of Development Economics 158 102912 Elsevier BV 0304-3878 Joint/individual liability; Public/private repayment; Belief-dependent motivations; Guilt; Shame; Lab-in-the-field experiment 1 9 2022 2022-09-01 10.1016/j.jdeveco.2022.102912 COLLEGE NANME Social Sciences School COLLEGE CODE SOSS Swansea University Another institution paid the OA fee 2023-08-30T12:05:09.0704125 2023-01-03T18:11:09.2625646 Faculty of Humanities and Social Sciences School of Social Sciences - Economics Sanjit Dhami 0000-0002-3880-7454 1 Junaid Arshad 0000-0002-8452-4455 2 Ali al-Nowaihi 3 62256__26450__a701c2a64a494d7c990965e6c09fb19a.pdf 62256_VoR.pdf 2023-02-01T17:44:30.7210054 Output 1477871 application/pdf Version of Record true © 2022 The Author(s). This is an open access article under the CC BY license true eng http://creativecommons.org/licenses/by/4.0/
title Psychological and social motivations in microfinance contracts: Theory and evidence
spellingShingle Psychological and social motivations in microfinance contracts: Theory and evidence
Junaid Arshad
title_short Psychological and social motivations in microfinance contracts: Theory and evidence
title_full Psychological and social motivations in microfinance contracts: Theory and evidence
title_fullStr Psychological and social motivations in microfinance contracts: Theory and evidence
title_full_unstemmed Psychological and social motivations in microfinance contracts: Theory and evidence
title_sort Psychological and social motivations in microfinance contracts: Theory and evidence
author_id_str_mv 97a3e6ef2f020ad96eb92185cc8727d4
author_id_fullname_str_mv 97a3e6ef2f020ad96eb92185cc8727d4_***_Junaid Arshad
author Junaid Arshad
author2 Sanjit Dhami
Junaid Arshad
Ali al-Nowaihi
format Journal article
container_title Journal of Development Economics
container_volume 158
container_start_page 102912
publishDate 2022
institution Swansea University
issn 0304-3878
doi_str_mv 10.1016/j.jdeveco.2022.102912
publisher Elsevier BV
college_str Faculty of Humanities and Social Sciences
hierarchytype
hierarchy_top_id facultyofhumanitiesandsocialsciences
hierarchy_top_title Faculty of Humanities and Social Sciences
hierarchy_parent_id facultyofhumanitiesandsocialsciences
hierarchy_parent_title Faculty of Humanities and Social Sciences
department_str School of Social Sciences - Economics{{{_:::_}}}Faculty of Humanities and Social Sciences{{{_:::_}}}School of Social Sciences - Economics
document_store_str 1
active_str 0
description We study, theoretically and empirically, the effort choices of microfinance borrowers under individual liability (IL) and joint liability (JL) contracts when loan repayments are made either privately or publicly. Our theoretical model identifies guilt aversion in a JL contract and shame aversion under public repayment of loans as the main psychological drivers of effort choice. Evidence from our lab-in-the-field experiment in Pakistan reveals large treatment effects and confirms the central roles of guilt and shame. Under private repayment, a JL contract increases effort by almost 100% relative to an IL contract. Under public repayment, effort levels are comparable under IL and JL contracts, indicating that shame aversion plays a more important role than guilt aversion. Under IL, public repayment relative to private repayment increases effort by 60%, confirming our shame-aversion hypothesis. Under JL, the private versus public repayment contrast shows that shame trumps guilt in explaining borrowers’ effort choices.
published_date 2022-09-01T13:53:27Z
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score 11.108671

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