Peer monitoring, social ties and moral hazard in group lending programmes: evidence from Eritrea

Authors: Niels Hermes, Robert Lensink and Habteab Mehrteab Tek, 2003
Publication: Research Report 03E36, University of Groningen, Research Institute SOM (Systems, Organisations and Management).

Abstract: In this paper, we provide an empirical analysis of the impact of monitoring and social ties within group lending programs on moral hazard behavior of its participants, based on data from an extensive questionnaire held in Eritrea among participants of 102 groups. We find support for the fact that peer monitoring by and social ties of group leaders do help to reduce moral hazard behavior of group members. In contrast, peer monitoring by and social ties of other group members are not related to reducing the occurrence of moral hazard within groups.

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