Peer monitoring, social ties and moral hazard in group lending programs:Evidence from Eritrea

In this paper, we investigate the impact of monitoring and social ties on moral hazard behavior within group lending programs. Our study is based on data from an extensive questionnaire held in Eritrea among participants of 102 groups. We separately analyze the impact of group leaders and other group members. We show that the monitoring and the social ties of group leaders and not the other group members reduce the moral hazard behavior within groups. (C) 2004 Elsevier Ltd. All rights reserved.