Abstract

Does social capital matter to economic decision-making? We address this broad question through an artefactual group lending experiment carried out in five countries: India, Kenya, Guatemala, Armenia, and the Philippines, obtaining data on 10,673 contribution decisions from 1,554 subjects in 259 experimental borrowing groups. We carry out treatments for social homogeneity, group monitoring, and borrowing group self-selection. Results show that societal trust positively and significantly influences group loan contribution rates, that group lending appears to create as well as harness social capital, and that peer monitoring can have perverse as well as beneficial effects.

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