Here Today, Gone Tomorrow: Can Dynamic Incentives Make Microfinance More Flexible?” (2006) Journal of Development Economics (80):1, 84 – 105.

Abstract: This paper presents a model of microfinance lending to individuals that uses dynamic incentives, in the form of access to additional loans, to discourage borrowers from strategic default, or the unwillingness to repay a loan once a positive outcome is realized. We propose an improvement on contracts currently used by microfinance institutions (MFIs) by endogenizing the default penalty, while constraining the MFI to maintain sustainable lending operations. Furthermore, accounting for the risks that the poor face by including a negative economic shock, we show that under certain circumstances, the punishment for default need not be a lifetime without loans..


“Overcoming Selection Bias in Microcredit Impact Assessments: A case study from Peru.” Journal of Development Studies. Anticipated publication in Vol. 44, No.4 (April 2008).

Abstract: There are several potential sources of bias in microfinance impact assessments. This paper uses a panel data set from a Peruvian MFI to test for impact of credit on microenterprise profits, while controlling for these biases. We find that those who will eventually become borrowers have significantly higher incomes than those who will not become borrowers, implying that selection into the lending program is a substantial problem. After controlling for this selection, we find that an average microentrepreneur who borrows earns significantly higher enterprise profits than one who does not borrow, and that nave models, which do not control for selection, overestimate this impact. Fixed-effect estimates give roughly the same results as the quasi-experimental cross section analysis.


“Cross Sectional Impact: Bias from Dropouts” with Dean Karlan, Yale University. Forthcoming in Perspectives on Technology and Development.

Abstract: Several microfinance organizations have begun using a management tool, developed by Assessing the Impact of Microenterprise Services (AIMS) at the United States Agency for International Development (USAID), to assess impact. This tool recommends comparing veteran members to new members of a microcredit program, and attributes any difference to the impact of the program. The tool introduces a potential source of bias into estimates of impact by not instructing organizations to include program dropouts in their calculations. This paper uses data from a longitudinal study in Peru of Mibanco borrowers and non-borrowers to quantify some, but not all, of the biases in the cross-sectional approach. In these data, not including dropouts overestimates the impact of the credit program. Furthermore, we find that the sample composition shifted over the two years, introducing further bias into a cross-sectional impact assessment.


“Drug Markets: A Classroom Experiment (2006) American Economist, LI (1): 75 – 83.

Abstract: Experiments are becoming increasingly popular in economics principles classes as a way to gain student interest in a rather abstract subject. This experiment examines the market for illegal drugs, such as marijuana, and the effects of loosening government intervention on it. While the media tends to focus on the ‘normative’ aspects of drug legislation, students explore the ‘positive’ effects that such legislation would produce. This paper contains detailed instructions on the experiment, including a discussion of decriminalization and legalization, and ends with empirical research on the drug market, a discussion of sin taxes, and the economic costs associated with drug use.

Additional Materials for the Experiment: Instructions Tables (Excel Spreadsheet) Personal Information Sheets Handout Homework


“Beyond the Subsidy: Coyotes, Credit and Fair Trade Coffee.” with Julie Carlson DeCourcy, Federal Trade Commission.

Abstract: Instead of paying farmers the market price for the good that they produce, fairtrade imposes a price floor on products sold under the Fairtrade label. The standard economic analysis of price floors concludes that fairtrade is nothing more than an inefficient subsidy. However, the standard analysis of price floors relies on perfectly competitive markets – which are unlikely for the small coffee producers that fairtrade targets. By severing the interlinkage between credit and coffee purchase by local coyotes (trader-lenders), Fairtrade contracts may improve the outcome of the imperfectly competitive market. In this paper, three mathematical models of coffee production are examined. We consider coffee production as if it were perfectly competitive, as it exists in the absence of fairtrade, and in the presence of fairtrade. In comparing the outcomes, fairtrade may not lead to the quantity distortions expected from a subsidy, particularly when world coffee prices or the demand for fairtrade coffee is low. Furthermore, fairtrade always improves the farmer’s profit relative to the coyote equilibrium, the very outcome that fairtrade aims to achieve.


“Essays on the Dynamics of Microfinance Ph.D. Dissertation, University of Maryland, College Park, June 2001.