Monday 03 November 2025 12:00 - 13:30

SAL 1.04, 1st Floor Conference Room, Sir Arthur Lewis Building, LSE, 32 Lincoln's Inn Fields, London WC2A 3PH

About this event

Firms often cite financing constraints as key barriers, yet lenders rarely innovate beyond debt products. While theory suggests debt may dominate equity due to adverse selection and moral hazard, these mechanisms are difficult to isolate empirically. We design and test a microequity product with Egyptian livestock farmers, providing animals and splitting sales proceeds at a fixed rate. We market this product alongside a flexible debt contract. Using a two-stage RCT, we disentangle selection from contract effects. We find strong demand for equity, with many participants willing to accept lower financing probability to avoid debt. These "equity-only" participants exhibit advantageous selection on some key contract performance metrics relative to those willing to accept either contract. However, holding selection fixed, equity causes a drop in net revenue relative to debt—evidence of moral hazard. A set of currency devaluations eliminated this negative effect, demonstrating that moral hazard varies with context. Our findings suggest microequity can enhance financial inclusion by attracting new clients, but managing moral hazard remains a primary, context-dependent challenge.

Participants are expected to adhere to the CEP Events Code of Conduct.

Directions

This event will take place in SAL 1.04, 1st Floor Conference Room, Sir Arthur Lewis Building, LSE, 32 Lincoln's Inn Fields, London WC2A 3PH.

This series is part of the CEP's Labour Markets programme.