Creditworthiness as a Signal of Trustworthiness: Field Experiment in Microfinance and Consequences on Causality in Impact Studies

62 Pages Posted: 30 Jan 2014

See all articles by Leonardo Becchetti

Leonardo Becchetti

University of Rome Tor Vergata - Faculty of Economics

Pierluigi Conzo

University of Turin - Department of Economics and Statistics; Collegio Carlo Alberto

Date Written: December 2009

Abstract

Creditworthiness and trustworthiness are almost synonyms because, under asymmetric information, the act of conferring a loan has the indirect effect of signaling the trustworthiness of the borrower. We test the creditworthiness/trustworthiness nexus in an investment game experiment on a sample of participants/non-participants in a microfinance program in Argentina and find that trustors give significantly more to (and believe they will receive more from) microfinance borrowers. The first- and second-order beliefs of trustees are also consistent with this picture. Our findings then show that MF participants appear more trustworthy and this may help microfinance to work. A related consequence is that, if (and only if) borrower's trustworthiness is not public information, the mere loan provision acts as a reputation enhancing signal increasing the borrower's attractiveness as a business partner. In such case we have a channel through which a private financial intermediary contributes to the provision of a public good like information, thereby reducing the adverse consequences of market failures on the creation of economic value.

Keywords: Field experiment, Microfinance, Investment game, Trust, Trustworthiness

JEL Classification: O16, C93, D03

Suggested Citation

Becchetti, Leonardo and Conzo, Pierluigi, Creditworthiness as a Signal of Trustworthiness: Field Experiment in Microfinance and Consequences on Causality in Impact Studies (December 2009). Journal of Public Economics, Vol. 95, No. 3-4, 2011, Available at SSRN: https://ssrn.com/abstract=2387378

Leonardo Becchetti

University of Rome Tor Vergata - Faculty of Economics ( email )

Via Columbia, 2
I-00133 Rome
Italy

Pierluigi Conzo (Contact Author)

University of Turin - Department of Economics and Statistics ( email )

Campus Luigi Einaudi
Lungo Dora Siena 100 A
Torino, Torino 10153
Italy
011/6703892 (Phone)
011/6703895 (Fax)

HOME PAGE: http://www.pieroconzo.altervista.org/wordpress/

Collegio Carlo Alberto ( email )

Piazza Arbarello, 8
Torino, 10122
Italy

HOME PAGE: http://www.carloalberto.org/people/faculty/affiliates/pierluigi-conzo/

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