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Kin Groups and Reciprocity: A Model of Credit Transactions in Ghana

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Author Info
Eliana La Ferrara

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Abstract

This paper studies kinship band networks as capital market institutions. Membership in a community where individuals are dynastically linked has two effects on informal credit. First, the nonanonymity of the dynastic link allows to sanction the defaulters' offspring and induce compliance even in short-term interactions (social enforcement). Second, preferential agreements can arise in which kin members condition their behavior on the characteristics of a player's predecessor, expecting others to do the same with their offspring (reciprocity). These effects are incorporated in an OLG game with endogenous matching between lenders and borrowers and tested using household-level data from Ghana.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 93 (2003)
Issue (Month): 5 (December)
Pages: 1730-1751
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Handle: RePEc:aea:aecrev:v:93:y:2003:i:5:p:1730-1751

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Ghatak, Maitreesh & Guinnane, Timothy W., 1999. "The economics of lending with joint liability: theory and practice," Journal of Development Economics, Elsevier, vol. 60(1), pages 195-228, October. [Downloadable!] (restricted)
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  2. Smith, Lones, 1992. "Folk theorems in overlapping generations games," Games and Economic Behavior, Elsevier, vol. 4(3), pages 426-449, July. [Downloadable!] (restricted)
  3. Coate, Stephen & Ravallion, Martin, 1993. "Reciprocity without commitment : Characterization and performance of informal insurance arrangements," Journal of Development Economics, Elsevier, vol. 40(1), pages 1-24, February. [Downloadable!] (restricted)
  4. Collier, Paul & Garg, Ashish, 1999. " On Kin Groups and Wages in the Ghanaian Labour Market," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(2), pages 133-51, May. [Downloadable!] (restricted)
  5. Fafchamps, Marcel, 2000. "Ethnicity and credit in African manufacturing," Journal of Development Economics, Elsevier, vol. 61(1), pages 205-235, February. [Downloadable!] (restricted)
  6. Udry, Christopher, 1994. "Risk and Insurance in a Rural Credit Market: An Empirical Investigation in Northern Nigeria," Review of Economic Studies, Blackwell Publishing, vol. 61(3), pages 495-526, July. [Downloadable!] (restricted)
  7. Fafchamps, Marcel & Lund, Susan, 2003. "Risk-sharing networks in rural Philippines," Journal of Development Economics, Elsevier, vol. 71(2), pages 261-287, August. [Downloadable!] (restricted)
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  8. Kandori, Michihiro, 1992. "Social Norms and Community Enforcement," Review of Economic Studies, Blackwell Publishing, vol. 59(1), pages 63-80, January. [Downloadable!] (restricted)
  9. Kenneth M. Kletzer & Brian D. Wright, 2000. "Sovereign Debt as Intertemporal Barter," American Economic Review, American Economic Association, vol. 90(3), pages 621-639, June. [Downloadable!] (restricted)
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  10. Posner, Richard A, 1980. "A Theory of Primitive Society, with Special Reference to Law," Journal of Law & Economics, University of Chicago Press, vol. 23(1), pages 1-53, April.
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  11. Andrew D. Foster & Mark R. Rosenzweig, 2001. "Imperfect Commitment, Altruism, And The Family: Evidence From Transfer Behavior In Low-Income Rural Areas," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 389-407, August. [Downloadable!] (restricted)
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  12. Besley, Timothy & Coate, Stephen, 1995. "Group lending, repayment incentives and social collateral," Journal of Development Economics, Elsevier, vol. 46(1), pages 1-18, February. [Downloadable!] (restricted)
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  13. Ethan Ligon & Jonathan P. Thomas & Tim Worrall, 2000. "Mutual Insurance, Individual Savings and Limited Commitment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(2), pages 216-246, April. [Downloadable!] (restricted)
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  14. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-48, June. [Downloadable!] (restricted)
  15. Besley, Timothy, 1995. "Nonmarket Institutions for Credit and Risk Sharing in Low-Income Countries," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 115-27, Summer. [Downloadable!] (restricted)
  16. Kandori, Michihiro, 1992. "Repeated Games Played by Overlapping Generations of Players," Review of Economic Studies, Blackwell Publishing, vol. 59(1), pages 81-92, January. [Downloadable!] (restricted)
  17. Ligon, Ethan & Thomas, Jonathan P & Worrall, Tim, 2002. "Informal Insurance Arrangements with Limited Commitment: Theory and Evidence from Village Economies," Review of Economic Studies, Blackwell Publishing, vol. 69(1), pages 209-44, January.
  18. Fafchamps, Marcel, 1992. "Solidarity Networks in Preindustrial Societies: Rational Peasants with a Moral Economy," Economic Development and Cultural Change, University of Chicago Press, vol. 41(1), pages 147-74, October.
  19. Cremer, Jacques, 1986. "Cooperation in Ongoing Organizations," The Quarterly Journal of Economics, MIT Press, vol. 101(1), pages 33-49, February. [Downloadable!] (restricted)
  20. Posner, Richard A, 1997. "Social Norms and the Law: An Economic Approach," American Economic Review, American Economic Association, vol. 87(2), pages 365-69, May. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Andreas Madestam, 2009. "Informal Finance: A Theory of Moneylenders," Working Papers 2009.69, Fondazione Eni Enrico Mattei. [Downloadable!]
    Other versions:
  2. Alberto Alesina & Paola Giuliano, 2007. "The Power of the Family," IZA Discussion Papers 2750, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  3. Manuela Angelucci & Giacomo DeGiorgi & Marcos A. Rangel & Imran Rasul, 2009. "Family Networks and School Enrolment: Evidence from a Randomized Social Experiment," NBER Working Papers 14949, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. David Dreyer Lassen & Helene Bie Lilleør, 2008. "Informal Institutions and Intergenerational Contracts: Evidence from Schooling and Remittances in Rural Tanzania," CAM Working Papers 2008-03, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics. [Downloadable!]
  5. Zekeriya Eser & Joe Peek, 2006. "Reciprocity and Network Coordination: Evidence from Japanese Banks," Hi-Stat Discussion Paper Series d05-157, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  6. Do, Q-T & Iyer, S. & Joshi, S., 2006. "The Economics of Consanguinity," Cambridge Working Papers in Economics 0653, Faculty of Economics, University of Cambridge. [Downloadable!]
  7. Karlan, Dean S., 2007. "Social Connections and Group Banking," CEPR Discussion Papers 6194, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. La Ferrara, Eliana, 2007. "Descent Rules and Strategic Transfers. Evidence from Matrilineal Groups in Ghana," CEPR Discussion Papers 6111, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  9. Jeremy Edwards & Sheilagh Ogilvie, 2008. "Contract Enforcement, Institutions and Social Capital: the Maghribi Traders Reappraised," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  10. Bennett, John, 2008. "Formality, Informality, and Social Welfare," IZA Discussion Papers 3550, Institute for the Study of Labor (IZA). [Downloadable!]
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  11. Jacoby, Hanan G. & Mansuri, Ghazala, 2007. "Watta satta : bride exchange and women's welfare in rural Pakistan," Policy Research Working Paper Series 4126, The World Bank. [Downloadable!]
  12. Dora L. Costa & Matthew E. Kahn, 2004. "Shame and Ostracism: Union Army Deserters Leave Home," NBER Working Papers 10425, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Alberto Alesina & Eliana La Ferrara, 2004. "Ethnic Diversity and Economic Performance," NBER Working Papers 10313, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Burger, Ronelle & Booysen, Frikkie & Van der Berg, Servaas & Von Maltitz, Michael, 2006. "Marketable Wealth in a Poor African Country," MPRA Paper 9063, University Library of Munich, Germany. [Downloadable!]
  15. Carmona, Guilherme, 2006. "On the Optimality of the Equality Matching Form of Sociality," FEUNL Working Paper Series wp489, Universidade Nova de Lisboa, Faculdade de Economia. [Downloadable!]
  16. Karen Macours & Alain de Janvry & Elisabeth Sadoulet, 2004. "Insecurity of Property Rights and Matching in the Tenancy Market," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series 992, Department of Agricultural & Resource Economics, UC Berkeley. [Downloadable!]
  17. Burger, Ronelle & Booysen, Frikkie & van der Berg, Servaas & von Maltitz, Michael, 2006. "Marketable Wealth in a Poor African Country: Using an index of consumer durables to investigate wealth accumulation by households in Ghana," Working Papers RP2006/138, World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  18. Do, Quy-Toan & Iyer, Sriya & Joshi, Shareen, 2006. "The economics of consanguineous marriages," Policy Research Working Paper Series 4085, The World Bank. [Downloadable!]
  19. Rohini Pande & Christopher Udry, 2005. "Institutions and Development:A View from Below," Working Papers 928, Economic Growth Center, Yale University. [Downloadable!]
  20. Kurt Annen, 2005. "Economic Returns to Social Capital in the Urban Informal Sector in Developing Countries: Micro Evidence from Small Textile Producers in Bolivia," Development and Comp Systems 0511011, EconWPA. [Downloadable!]
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