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Social Norms and Individual Savings in the Context of Informal Insurance

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  • Zaki Wahhaj

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Abstract

This paper develops a theory of informal insurance in the presence of an intertemporal technology. It is shown that when an insurance agreement suffers from enforcement problems, constraints on individual savings behaviour can enable the group to sustain greater cooperation. This result provides a motivation for a variety of social norms observed in traditional societies which discourage 'excessive' accumulation of wealth by individuals. The paper also shows that social norms that discourage savings are more likely to benefit poorer communities and thus, paradoxically, cause them to fall further behind even as it serves a useful purpose.

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Bibliographic Info

Paper provided by Centre for Economic Development and Institutions(CEDI), Brunel University in its series CEDI Discussion Paper Series with number 08-20.

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Length: 25 pages
Date of creation: Oct 2008
Date of revision:
Handle: RePEc:edb:cedidp:08-20

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  2. Mikhail Golosov & Narayana Kocherlakota & Aleh Tsyvinski, 2002. "Optimal Indirect and Capital Taxation," NajEcon Working Paper Reviews 391749000000000449, www.najecon.org.
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  9. Ligon, Ethan & Thomas, Jonathan P & Worrall, Tim, 2002. "Informal Insurance Arrangements with Limited Commitment: Theory and Evidence from Village Economies," Review of Economic Studies, Wiley Blackwell, vol. 69(1), pages 209-44, January.
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  14. Ethan Ligon & Jonathan P. Thomas & Tim Worrall, 1998. "Mutual Insurance, Individual Savings and Limited Commitment," Keele Department of Economics Discussion Papers (1995-2001) 98/14, Department of Economics, Keele University.
  15. Kimball, Miles S, 1988. "Farmers' Cooperatives as Behavior Toward Risk," American Economic Review, American Economic Association, vol. 78(1), pages 224-32, March.
  16. Harold L Cole & Narayana Kocherlakota, 2010. "Efficient Allocations with Hidden Income and Hidden Storage," Levine's Working Paper Archive 1909, David K. Levine.
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  18. Atkeson, Andrew & Lucas, Robert E, Jr, 1992. "On Efficient Distribution with Private Information," Review of Economic Studies, Wiley Blackwell, vol. 59(3), pages 427-53, July.
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  21. Besley, Timothy, 1995. "Savings, credit and insurance," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 3, chapter 36, pages 2123-2207 Elsevier.
  22. Rogerson, William P, 1985. "Repeated Moral Hazard," Econometrica, Econometric Society, vol. 53(1), pages 69-76, January.
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Cited by:
  1. Sarmistha Pal & Zaki Wahhaj, 2012. "Fiscal Decentralisation, Local Institutions and Public Goods Provision: Evidence from Indonesia," Studies in Economics 1216, Department of Economics, University of Kent.

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