Joint Lending, Not Borrowing: A New Approach to Credit and Entrepreneurship in LDCs

Research Note
Published on 26 February 2019

Abstract

Wan and Chandrasekhar (2019) study how the quality of decision making, in this case by credit officers, depends on (1) whether decisions are made at the group or individual level, (2) whether soft information is available beyond hard information, and (3) the incentive structure that officers face. They find that individual credit officers are 28% less likely to assess applications correctly when soft information (e.g. caste of applicant) is provided. Further, biased individuals – as measured by an IAT – make worse decisions, particularly when their caste differs from the applicant’s. However, the authors find that when evaluators are paired, the quality of decision making improves, especially when pairs are mixed-caste.

Authors

Xiao Yu Wang

Duke University

Arun Chandrasekhar

Stanford University