In the first chapter of this dissertation, I draw together the literature on credit market failure and political commitment and propose a new channel by which a politician may intervene in the credit market without pressuring banks to increase or redirect lending. Instead, the politician can make a constituent into a more attractive credit risk by making her receipt of private government aid conditional on her loan repayment; much like collateral, this allows the constituent to credibly commit to repaying her loan. However, the politician’s offer to deliver benefits is itself only credible if the politician values the constituent’s support. I provide evidence of this interaction with novel data from a survey of microcredit groups in South India. Using measures of the constituent’s valuation of two forms of government aid and exogenous variation in the probability that the local politician is eligible for reelection, I show that a constituent with high aid valuation receives more aid, spends more time supporting the politician and his political allies, and receives more credit than a constituent with low valuation, but only when the politician is likely to be eligible for reelection. This analysis underscores the importance of local politicians as brokers, which may be very relevant in many contexts across both rich and poor countries.<br/><br/> In the second chapter, I examine a different aspect of the same microcredit groups: in addition to borrowing money from banks, these groups also engage in internal savings and lending. I compare this behavior with that of similar groups in Africa and show that the Indian groups suffer from a fundamental problem of undersaving. In addition, attempts by external actors to ”bolster” the groups may in fact have a perverse outcome by weakening the incentive of each individual member to save.
Goldston, Jacob,
"Essays on Semiformal Financial Institutions in Rural India"
(2013).
Economics Theses and Dissertations.
Brown Digital Repository. Brown University Library.
https://doi.org/10.7301/Z0PC30QM
