Assortative matching, adverse selection, and group lending

Joel M. Guttman

Research output: Contribution to journalArticlepeer-review

30 Scopus citations


This note reconsiders a theoretical result asserted to explain the success of group lending programs in LDCs. It has been claimed that if groups are allowed to form themselves, risky and safe borrowers will sort themselves into relatively homogenous groups. This "positive assortative matching" can be exploited by lenders to solve an adverse selection problem that would otherwise undermine the effectiveness of such lending programs. I show that the positive assortative matching result does not necessarily hold if earlier models are extended to incorporate dynamic incentives.

Original languageEnglish
Pages (from-to)51-56
Number of pages6
JournalJournal of Development Economics
Issue number1
StatePublished - Aug 2008


  • Adverse selection
  • Assortative matching
  • Group lending
  • Microcredit
  • Microfinance


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