Performance pay and assortative matching

Peer reviewedPostprin

Coupling couples with copulas: analysis of assortative matching on risk attitude

We investigate patterns of assortative matching on risk attitude, using self‐reported (ordinal) data on risk attitudes for males and females within married couples, from the German Socio‐Economic Panel over the period 2004–2012. We apply a novel copula‐based bivariate panel ordinal model. Estimation is in two steps: first, a copula‐based Markov model is used to relate the marginal distribution of the response in different time periods, separately for males and females; second, another copula is used to couple the males' and females' conditional (on the past) distributions. We find positive dependence, both in the middle of the distribution, and in the joint tails, and we interpret this as positive assortative matching (PAM). Hence we reject standard assortative matching theories based on risk‐sharing assumptions, and favor models based on alternative assumptions such as the ability of agents to control income risk. We also find evidence of “assimilation”; that is, PAM appearing to increase with years of marriage. (JEL C33, C51, D81

Strategies for Reducing Microfinance Loan Default in Low-Income Markets

Poor loan repayment causes the decline and failure of some microfinance institutions. The purpose of this qualitative multiple case study was to explore strategies that microfinance (MFI) leaders use to reduce loan default in the base of the pyramid market. The study population included 6 MFI leaders, 12 borrower community-based groups, and 4 staff members of the Adventist Development and Relief Agency (ADRA Rwanda) who reduced MFI loan default in Rwanda. Data were collected through semistructured interviews with 3 MFI leaders, 3 ADRA Rwanda staff members, and 3 members of borrower groups. Data were also collected through focus groups with 3 borrower community-based groups comprising 6 to 8 members. Additional data were collected through the analysis of MFI and ADRA Rwanda organizational documents. The Varian group lending model was the conceptual framework for the study. Data analysis involved methodological triangulation and the Gadamerian hermeneutics framework of interpretation. Four major themes emerged: intrapreneurship and environmental business opportunities, favorable loan repayment conditions, strategies for choosing borrower groups, and loan use monitoring. A sustainable microfinance institution can produce social change by providing microfinance loans that clients can use to start and grow microenterprises that can become the source of income for improving the lives of clients and their family members. Findings may also be used to create economic growth through the participation of more people in economic activities in the base of the pyramid market