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ID: 092332

Principal - Agent problems in humanitarian intervention: Moral Hazards, adverse selection, and the commitment dilemma / Rauchhaus, Robert W

Rauchhaus, Robert W	Journal Article
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2009.

Summary/Abstract

A number of recent studies have concluded that humanitarian intervention can produce unintended consequences that reduce or completely undermine conflict management efforts. Some analysts have argued that the incentive structure produced by third parties is a form of moral hazard. This paper evaluates the utility of moral hazard theory and a second type of principal-agent problem known as adverse selection. Whereas moral hazards occur when an insured party has an opportunity to take hidden action once a contract is in effect, adverse selection is the result of asymmetric information prior to entering into a contract. Failing to distinguish between these two types of principal-agent problems may lead to policy advice that is irrelevant or potentially harmful. Along with introducing the concept of adverse selection to the debate on humanitarian intervention, this study identifies a commitment dilemma that explains why third parties operating in weakly institutionalized environments may be unable to punish groups that take advantage of intervention.

Key Words

Humanitarian Intervention ; Principal - Agent ; Moral Hazards ; Adverse Selection ; Commitment Dilemma

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ID: 187135

Screening and monitoring in informal credit markets: evidence from rural Punjab / Singh, Indervir

Singh, Indervir	Journal Article
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Summary/Abstract

The present article examines the screening and monitoring strategies used by lenders to solve the problem of imperfect information in the rural informal credit market. The study uses data from a primary survey conducted in Punjab, India. The survey focuses on informal lending between commission agents and farmers. Data were collected from 120 randomly selected commission agents from four blocks. Each of the blocks represents a different development level. The results show that commission agents invested significant time and resources for screening and monitoring the farmers. The screening and monitoring were found to be more stringent in areas that were underdeveloped and had higher default risk. Commission agents could shift a significant share of the screening cost to the borrowers, thereby increasing their self-enforcement range. The study argues that high screening cost hurts small farmers. The regression results found a significant reduction in the default rate and the unrecovered loan due to screening strategies.

Key Words

Moral hazard ; Monitoring ; Adverse Selection ; Screening ; Farm Credit ; Imperfect Information ;
Informal Credit Markets

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