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Roscas as financial agreements to cope with social pressure

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  • Ambec, S.
  • Treich, N.

Abstract

In developing countries, traditional social obligations often press rich individuals to share their income. In this paper, we posit a "model of social pressure" in which people can sign binding financial agreements amongst themselves, thereby forming coalitions. These financial agreements may help them to alleviate their social obligations with respect to income sharing. In the above context, we show that there exists a stable structure of coalitions in which people form rotating savings and credit associations (roscas). We therefore provide a rationale for one of the most prevalent and puzzling financial institutions.

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File URL: http://www.grenoble.inra.fr/Docs/pub/A2003/gael2003-01.pdf
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Bibliographic Info

Paper provided by Grenoble Applied Economics Laboratory (GAEL) in its series Working Papers with number 200301.

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Date of creation: 2003
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Handle: RePEc:gbl:wpaper:200301

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Keywords: ROSCA; SOCIAL PRESSURE; STABILITY; CONTRACT; CREDIT;

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  1. Levenson, Alec R. & Besley, Timothy, 1996. "The anatomy of an informal financial market: Rosca participation in Taiwan," Journal of Development Economics, Elsevier, vol. 51(1), pages 45-68, October.
  2. Platteau, J.P., 1996. "Traditional Sharing Norms as an Obstacle to Economic Growth in Tribal Societies," Papers 173, Notre-Dame de la Paix, Sciences Economiques et Sociales.
  3. Matthew Rabin & Ted O'Donoghue, 1999. "Doing It Now or Later," American Economic Review, American Economic Association, vol. 89(1), pages 103-124, March.
  4. Siwan Anderson & Jean-Marie Baland, 2002. "The Economics Of Roscas And Intrahousehold Resource Allocation," The Quarterly Journal of Economics, MIT Press, vol. 117(3), pages 963-995, August.
  5. Besley, Timothy & Coate, Stephen & Loury, Glenn, 1993. "The Economics of Rotating Savings and Credit Associations," American Economic Review, American Economic Association, vol. 83(4), pages 792-810, September.
  6. Jon Elster, 1998. "Emotions and Economic Theory," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 47-74, March.
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Cited by:
  1. Olivier Dagnelie & Philippe LeMay-Boucher, 2008. "Rosca Participation in Benin: a Commitment Issue," Working Papers 339, Barcelona Graduate School of Economics.
  2. Sylvain Dessy & Jacques Ewoudou & Isabelle Ouellet, 2006. "Understanding the Persistent Low Performance of African Agriculture," Cahiers de recherche 0622, CIRPEE.

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