["The Developing Economies, EarlyView. ", "\nABSTRACT\nThis paper examines how unobserved savings affect the benefits of relative performance contracts versus group contracts. Using a dynamic moral hazard model in which agents can secretly save, the study suggests that the benefits of group contracts increase with greater inequality between agents and decrease with stronger income correlation. Moreover, hidden savings enhance the relative benefits of group contracts, amplifying the effect of inequality while diminishing the effect of income correlation. Additionally, under group contracts, agents rely more on risk‐sharing networks and less on their own savings. Empirical analysis from rural Thailand—using detailed household data on characteristics, loan choices, and responses to liquidity shocks—supports the model's predictions. Households are more likely to choose group loans in areas with severe hidden savings problems or low income correlation. Furthermore, households with group loans rely more on risk‐sharing networks to manage liquidity shocks.\n"]