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Banking with sentiments. A model of fiduciary interactions in micro-credit programs

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  • V. Pelligra

Abstract

The success of many micro-credit initiatives is difficult to account for in the traditional economic framework, where, mainly because of the assumption of self-interested behaviour, credit is rationed and provided only to those able to back it with collaterals. Having analysed different alternative explanations for such a success, the paper introduces the concept of trust responsiveness in the lender-borrower relationship and formalises it in a psychological game-theoretical model aimed at explaining the unusually high rate of repayment experienced in micro-credit programs. Three well-known psychological effects are introduced to discuss the factors that may positively or negatively affect borrowers' trustworthiness. This model provides important normative implications for institutional design.

Suggested Citation

  • V. Pelligra, 2005. "Banking with sentiments. A model of fiduciary interactions in micro-credit programs," Working Paper CRENoS 200503, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    • Handle: RePEc:cns:cnscwp:200503
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    References listed on IDEAS

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    More about this item

    Keywords

    microfinance; trust responsiveness; psychological game theory;
    All these keywords.

    JEL classification:

    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact

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