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Dean Karlan is a non-resident fellow at the Center for Global Development and a Professor of Economics at Yale University. Karlan is also President of Innovations for Poverty Action (IPA), co-director of the Financial Access Initiative, a consortium created with funding from the Bill and Melinda Gates Foundation, a research fellow of the M.I.T. Jameel Poverty Action Lab, and co-Founder and President of StickK.com. In 2007, he received a Presidential Early Career Award for Scientists and Engineers and in 2008 a Alfred P. Sloan Research Fellowship. His research focuses on microeconomic issues of financial decision-making, specifically employing experimental methodologies to examine what works, what does not, and why in interventions in microfinance and health. Internationally, he focuses on microfinance, and domestically, he focuses on voting, charitable giving, and commitment contracts. In microfinance, he has studied interest rate policy, credit evaluation and scoring policies, entrepreneurship training, group versus individual liability, savings product design, credit with education, and impact from increased access to credit.
His work on savings and health typically uses insights from psychology and behavioral economics to design and test specialized products. He has consulted for the World Bank, the Asian Development Bank, FINCA International and the Guatemalan government. Karlan received a Ph.D.
in Economics from M.I.T., an M.B.A. and an M.P.P. from the University of Chicago, and a B.A. in International Affairs from the University of Virginia.
Microfinance is generally credited with helping to alleviate poverty and improve the lives of the poor. But as microfinance institutions move beyond entrepreneurial credit to offering consumer loans, many practitioners and policymakers are skeptical about "unproductive" lending. In this working paper, CGD non-resident fellow Dean Karlan and his co-author examine the effects of expanding consumer credit using a field experiment in which some loan applicants who had been denied credit were randomly selected to be "unrejected" for a loan. They find that compared to those who did not receive credit, borrowers showed increased employment, reduced hunger and poverty, while also being profitable for the lender. This paper is one in a series of six CGD working papers by Dean Karlan on various aspects of microfinance (Working Paper Nos. 106-111).
Information asymmetries--which occur when one party to a transaction has more or better information than the other party--can cause inefficiency, over-investment, or poverty traps. Unfortunately, they are difficult to identify in practice. In this working paper, CGD non-resident fellow Dean Karlan and his co-author identify two kinds of information asymmetries: adverse selection (where sellers lack information) and moral hazard (where buyers or borrowers lack information). The authors randomize loan pricing using 58,000 direct mail offers along three dimensions: an initial "offer interest rate", the actual interest rate on the loan contract, and the interest rate on future loans. They find that 7% to 16% of default on loans is due to asymmetric information problems. This paper is one in a series of six CGD working papers by Dean Karlan on various aspects of microfinance (Working Paper Nos. 106 –111).
Policymakers often urge microfinance institutions to increase interest rates to eliminate reliance on subsidies. This makes sense if the poor will borrow regardless of interest rates: then micro lenders increase profitability without reducing the poor's access to credit. But there is little evidence as to whether this is actually true. In this working paper, CGD non-resident fellow and his co-author test the elasticity of demand for microcredit using field data from South Africa. They find that price sensitivity increased sharply when individuals were offered a rate above their prior loan's rate. They also found that loan size is far more responsive to changes in loan maturity than to changes in interest rates. This paper is one in a series of six CGD working papers by Dean Karlan on various aspects of microfinance (Working Paper Nos. 106 –111).
Group liability--wherein individuals are both borrowers and guarantors of other client's loans--is often described as the key innovation that led to the explosion of microcredit. It is thought to create incentives for peers to screen, monitor and enforce each other's loans. But some argue that group liability actually discourages good clients from borrowing, jeopardizing growth and sustainability. In this working paper, CGD non-resident fellow Dean Karlan and his co-author discuss the results of a field experiment at a bank in the Philippines, where they randomly reassigned half of the existing group liability centers as individual liability centers. They find that converting group liability to individual liability, while keeping aspects of group lending like weekly repayments and common meeting place, does not affect the repayment rate, and actually attracts new clients. This paper is one in a series of six CGD working papers by Dean Karlan on various aspects of microfinance (Working Paper Nos. 106 –111).