Building an honest microfinance organization: Embezzlement and the optimality of rigid repayment schedules and joint liability

We consider the agency problem of a staff member managing microfinancing programs, who can abuse his discretion to embezzle borrowers' repayments. The fact that most borrowers of microfinancing programs are illiterate and live in rural areas where transportation costs are very high make staff's embezzlement particularly relevant as is documented by Mknelly and Kevane (2002). We study the trade-off between the optimal rigid lending contract and the optimal discretionary one and find that a rigid contract is optimal when the audit cost is larger than gains from insurance. Our analysis explains rigid repayment schedules used by the Grameen bank as an optimal response to the bank staff's agency problem. Joint liability reduces borrowers' burden of respecting the rigid repayment schedules by providing them with partial insurance. However, the same insurance can be provided byborrowers themselves under individual liability through a side-contract.

Failure to collude in the presence of asymmetric information

In this paper, we design the optimal contract when two agents can collude under asymmetric information. They have correlated types, produce complementary inputs and are protected by limited liability. Therefore, a joint manipulation of reports allows them to internalize informational and productive externalities. We show that by taking advantage of the transaction costs created by asymmetric information, even though they collude, the principal can achieve the outcome without collusion regardless of the sign and the degree of correlation. In particular, the principal can implement a non-monotonic quantity schedule in a collusion-proof way while this is impossible if collusion occurs under complete information.

Contract between John Cronyn and Nelson Forsyth, December 16, 1854.

John Cronyn (1827-1898) emigrated to Canada from Ireland in 1837. He studied medicine at the University of Toronto, but was not granted his degree upon completion of the requirements. He refused to take the test oaths meant to exclude Catholics from the profession and was not granted his degree until several years later, when the discriminatory laws were rescinded. In 1850, he married Elizabeth Willoughby of Toronto. They settled in Fort Erie and he established a successful medical practice there. He was active in the community, serving as Superintendent of schools and one term as Reeve. In 1859 he relocated to Buffalo and continued to practice medicine there. Cronyn was instrumental in the establishment of a medical department at Niagara University, where he was a professor and president of faculty. Nelson Forsyth was the son of William Forsyth (1771-1841), a prominent businessman in Niagara who owned and operated the Pavilion Hotel (later known as Forsyth’s Inn). Nelson was also a businessman and lived in Fort Erie with his wife Archange Warren.

A review of human tolerance to side impact. Final report.

National Highway Traffic Safety Administration, Office of Crashworthiness, Washington, D.C.

RSV test monitoring and data publication - Renault R20TS-to-Calspan RSV 75 degree right side impact at Renault. Final report.

National Highway Traffic Safety Administration, Washington, D.C.

RSV test monitoring and data publication - Renault R20TS-to-Calspan RSV 75 degree left side impact at Peugeot. Final report.

National Highway Traffic Safety Administration, Washington, D.C.

Statistical evaluation of the effectiveness of Federal Motor Vehicle Safety Standard 108: Side Marker Lamps (Only). Final report.

National Highway Traffic Safety Administration, Washington, D.C.

Statistical evaluation of the effectiveness of Federal Motor Vehicle Safety Standard 214: Side Door Strength. Final report.

National Highway Traffic Safety Administration, Washington, D.C.

Baseline test of compact vehicle side structure, 25 mph, 60 degree impact, Torino-to-Volare test no. 1. Final report.

National Highway Traffic Safety Administration, Washington, D.C.

Baseline test of compact vehicle side structure 25 mph, 60 degree impact, Torino-to-Volare test no. 2. Final report.

National Highway Traffic Safety Administration, Washington, D.C.

Impact test of compact vehicle with modified side structure, 25 mph, 60 degree impact, Torino-to-Volare, test no. 3. Final report.

National Highway Traffic Safety Administration, Washington, D.C.

Impact test of compact vehicle with modified side structure, 35 mph, 90 degree impact, Torino-to-Volare, test no. 4. Final report.

National Highway Traffic Safety Administration, Washington, D.C.

Impact test of compact vehicle with modified side structure, 35 mph, 60 degree impact, Torino-to-Volare, test no. 5. Final report.

National Highway Traffic Safety Administration, Washington, D.C.

Impact test of compact vehicle with modified side structure, 35 mph, 60 degree impact, Impala-to-Volare, test no. 10. Final report.

National Highway Traffic Safety Administration, Washington, D.C.

Impact test of compact vehicle with modified side structure, 35 mph, 90 degree impact, Impala-to-Volare, test no. 11. Final report.

National Highway Traffic Safety Administration, Washington, D.C.