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Ethnicity and Reciprocity: A model of Credit Transactions in Ghana

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  • Eliana La Ferrara

Abstract

This paper studies kinship band networks as capital market institutions. It explores two of the channels through which membership in a community where individuals are genealogically linked, such as a kinship group, can affect their access to informal credit. The first is that incentives to default are lower for community members who can expect retaliation to fall on their offspring as well as on themselves (social enforcement). The second is that lenders prefer to lend to those members from whom they can expect reciprocation in the form of future loans for themselves or for their children (reciprocity). These two effects are incorporated in a theoretical framework with overlapping generations and tested using household-level data from Ghana.

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Paper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 193.

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Handle: RePEc:igi:igierp:193

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  1. Farrell, Joseph & Maskin, Eric, 1989. "Renegotiation in repeated games," Games and Economic Behavior, Elsevier, Elsevier, vol. 1(4), pages 327-360, December.
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  4. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, American Economic Association, vol. 83(3), pages 525-48, June.
  5. Aryeetey, Ernest & Udry, Christopher, 1997. "The Characteristics of Informal Financial Markets in Sub-Saharan Africa," Journal of African Economies, Centre for the Study of African Economies (CSAE), Centre for the Study of African Economies (CSAE), vol. 6(1), pages 161-203, March.
  6. Timothy Besley & Stephen Coate & Glenn Loury, 1992. "The Economics of Rotating Savings and Credit Associations," Boston University - Institute for Economic Development, Boston University, Institute for Economic Development 24, Boston University, Institute for Economic Development.
  7. Besley, Timothy & Coate, Stephen, 1995. "Group lending, repayment incentives and social collateral," Journal of Development Economics, Elsevier, Elsevier, vol. 46(1), pages 1-18, February.
  8. Banerjee, Abhijit V & Besley, Timothy & Guinnane, Timothy W, 1994. "Thy Neighbor's Keeper: The Design of a Credit Cooperative with Theory and a Test," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(2), pages 491-515, May.
  9. Smith, Lones, 1992. "Folk theorems in overlapping generations games," Games and Economic Behavior, Elsevier, Elsevier, vol. 4(3), pages 426-449, July.
  10. Udry, Christopher, 1990. "Credit Markets in Northern Nigeria: Credit as Insurance in a Rural Economy," World Bank Economic Review, World Bank Group, World Bank Group, vol. 4(3), pages 251-69, September.
  11. Kandori, Michihiro, 1992. "Social Norms and Community Enforcement," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 59(1), pages 63-80, January.
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  13. Besley, Timothy, 1995. "Property Rights and Investment Incentives: Theory and Evidence from Ghana," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 103(5), pages 903-37, October.
  14. Posner, Richard A, 1980. "A Theory of Primitive Society, with Special Reference to Law," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 23(1), pages 1-53, April.
  15. Fafchamps, Marcel, 1996. "The enforcement of commercial contracts in Ghana," World Development, Elsevier, Elsevier, vol. 24(3), pages 427-448, March.
  16. Kandori, Michihiro, 1992. "Repeated Games Played by Overlapping Generations of Players," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 59(1), pages 81-92, January.
  17. Stiglitz, Joseph E, 1990. "Peer Monitoring and Credit Markets," World Bank Economic Review, World Bank Group, World Bank Group, vol. 4(3), pages 351-66, September.
  18. Douglas Bernheim, B. & Ray, Debraj, 1989. "Collective dynamic consistency in repeated games," Games and Economic Behavior, Elsevier, Elsevier, vol. 1(4), pages 295-326, December.
  19. Coate, Stephen & Ravallion, Martin, 1993. "Reciprocity without commitment : Characterization and performance of informal insurance arrangements," Journal of Development Economics, Elsevier, Elsevier, vol. 40(1), pages 1-24, February.
  20. Varian, H.R., 1989. "Monitoring Agents With Other Agents," Papers, Michigan - Center for Research on Economic & Social Theory 89-18, Michigan - Center for Research on Economic & Social Theory.
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Cited by:
  1. La Ferrara, Eliana, 2002. "Inequality and group participation: theory and evidence from rural Tanzania," Journal of Public Economics, Elsevier, Elsevier, vol. 85(2), pages 235-273, August.
  2. Alesina, Alberto F & La Ferrara, Eliana, 2000. "Who Trusts Others?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2646, C.E.P.R. Discussion Papers.
  3. De Paola, Maria & Scoppa, Vincenzo, 2005. "The Role of Family Ties in the Labour Market. An Interpretation Based on Efficiency Wage Theory," MPRA Paper 8956, University Library of Munich, Germany.
  4. Morduch, Jonathan, 1999. "Between the State and the Market: Can Informal Insurance Patch the Safety Net?," World Bank Research Observer, World Bank Group, World Bank Group, vol. 14(2), pages 187-207, August.
  5. Christian Stoff, 2004. "Establishing Cooperation between Groups: Ingroup versus Outgroup Punishment," SOI - Working Papers, Socioeconomic Institute - University of Zurich 0416, Socioeconomic Institute - University of Zurich, revised Feb 2006.

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