THY NEIGHBORS KEEPER - THE DESIGN OF A CREDIT COOPERATIVE WITH THEORYAND A TEST

Economists now appreciate that resource allocation in less economicall y developed economies is profoundly influenced by nonfirm economic ins titutions. However, our theories of nonfirm institutions often suggest different answers to many questions including those of policy. This p aper illustrates a method for discriminating between alternative theor ies using data from German credit cooperatives from nineteenth and ear ly twentieth century Germany. We build a model of credit cooperatives designed to provide monitoring incentives and test this using nineteen th century data.