Cooperative Dilemmas in Microfinance: Ability versus Willingness to Enforce Group Loans in Sierra Leone

Sabin, Nicholas and Reed-Tsochas, Felix (2017) Cooperative Dilemmas in Microfinance: Ability versus Willingness to Enforce Group Loans in Sierra Leone. Said Business School Working Paper 2017-19.

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Abstract

Under what structural conditions does the ability to enforce economic cooperation outweigh the willingness to enforce? We derive a framework from sociological theory in which the structural forces that mitigate the first-order cooperative dilemma may simultaneously exacerbate the second-order dilemma. We then examine how two dimensions of structural embeddedness, (1) structural cohesion and (2) disconnected subgroups, shape the behavior of microfinance clients in Sierra Leone. Group lending provides an ideal empirical cooperative dilemma: if one member does not repay, the others are held financially responsible. We complement statistical modelling with ethnographic analysis in a nested research design, the highest level including 5,582 repayments made by 1,884 borrowers. The results clarify how different group structures determine which alternative enforcement mechanisms are likely to dominate collective outcomes. We find that structural cohesion consistently increases economic cooperation to a point, beyond which unwillingness to punish outweighs the benefits of increased ability, resulting in worse group repayment. In contrast, groups that consist of disconnected subgroups are more willing to punish defectors in the out-subgroup. However, they are less able to effectively sanction and overall performance suffers.

Item Type: Oxford Saïd Research Paper
Additional Information: Updated version of SBS WP 2014-9
Keywords: Africa, economy, geography, social capital, social networks, complexity
Subject(s): Complexity
Centre: CABDyN Complexity Centre
Date Deposited: 03 Nov 2017 17:52
Last Modified: 03 Nov 2017 17:52
URI: http://eureka.sbs.ox.ac.uk/id/eprint/6615

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