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Rotating Savings and Credit Associations When Participants are Risk Averse

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  • Stefan Klonner

Abstract

We model rotating savings and credit associations (Roscas) among risk-averse participants who experience privately observed income shocks. A random Rosca is not advantageous, whereas a bidding Rosca is if temporal risk aversion is less pronounced than static risk aversion. The payoff scheme of a bidding Rosca facilitates risk sharing in the presence of information asymmetries. The risk-sharing performance of a simple arrangement where a group of homogenous individuals runs several bidding Roscas simultaneously is as good as that of a linear risk-sharing contract, and is more enforceable because it carries a fixed rather than a variable contribution. Copyright 2003 By The Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

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Bibliographic Info

Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 44 (2003)
Issue (Month): 3 (08)
Pages: 979-1005

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Handle: RePEc:ier:iecrev:v:44:y:2003:i:3:p:979-1005

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Cited by:
  1. Basu, Karna, 2008. "Hyperbolic discounting and the sustainability of rotational savings arrangements," MPRA Paper 20440, University Library of Munich, Germany.
  2. Tomomi Tanaka & Colin F Camerer & Quang Nguyen, 2006. "Poverty, politics, and preferences: Field Experiments and survey data from Vietnam," Levine's Bibliography 122247000000001099, UCLA Department of Economics.
  3. Ambec, Stefan & Treich, Nicolas, 2007. "Roscas as financial agreements to cope with self-control problems," Journal of Development Economics, Elsevier, vol. 82(1), pages 120-137, January.
  4. Abbi Kedir & Richard Disney & Indraneel Dasgupta, . "Why Use Roscas When You Can Use Banks? Theory And Evidence From Ethiopia," Discussion Papers 11/05, University of Nottingham, CREDIT.
  5. Christy Chung Hevener, 2006. "Alternative financial vehicles: rotating savings and credit associations (ROSCAs)," Community Affairs Discussion Paper 06-01, Federal Reserve Bank of Philadelphia.
  6. A. Lasagni & E. Lollo, 2011. "Participation in Rotating Savings and Credit Associations in Indonesia: New Empirical Evidence on Social Capital," Economics Department Working Papers 2011-EP05, Department of Economics, Parma University (Italy).
  7. Tomomi Tanaka & Colin F. Camerer & Quang Nguyen, 2006. "Preferences, Poverty and Politics: Experimental and Survey Data from Vietnam," Levine's Bibliography 321307000000000054, UCLA Department of Economics.

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