| Abstract |
This paper studies the role of social stigma in debt repayment decisions, using a randomized field experiment with the borrowers of a retail bank. In our experiment, borrowers are randomly chosen to have their repayment status shared with an observer who is also randomly selected from a pre-existing list of the borrower's social connections. First, we find that receiving the social disclosure treatment significantly reduces delinquency, by 20% of the base rate. Second, estimates from the benchmarking treatments indicate that borrowers are willing to pay 9% of their monthly income to preserve their social image, not significantly less than they would pay to maintain a good credit report. Third, we combine the random variation in the assigned social contexts with heterogeneity in subject characteristics to examine why borrowers respond to reputational incentives. We find that borrowers are concerned that the revelation of delinquency can make them a less attractive match in social interactions such as in the labor market or the marriage market, i.e., the instrumental role of reputation. Our findings highlight the role of social social collateral as an alternative mechanism to enforce lending contracts and expand credit provision. |