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Fraying of the Ties that Bind: HIV/AIDS and Informal Contract Enforcement in KwaZulu Natal, South Africa

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  • Linkow, Benjamin

Abstract

This paper provides a theoretical and empirical investigation of the effects of HIV/AIDS on communitylevel informal financial institutions such as rotating savings and credit associations. Our theoretical model illustrates that the mortality risk implied by the HIV/AIDS pandemic can put a significant strain on such institutions by shortening time horizons and weakening expectations of reciprocity on the part of participants. Mortality thus implies a community-wide externality, as even households that are not directly impacted by the disease are nonetheless adversely affected by living in high prevalence communities. Using panel data from the high-prevalence area of KwaZulu Natal, South Africa, we investigate the effects of community-level mortality on the rate of participation in community level financial and other types of groups. We find that mortality at the community level substantially reduces the prevalence of group membership, and that the differential impacts of mortality on different types of groups are consistent with the predictions of our theoretical model.

Suggested Citation

  • Linkow, Benjamin, 2009. "Fraying of the Ties that Bind: HIV/AIDS and Informal Contract Enforcement in KwaZulu Natal, South Africa," MPRA Paper 21769, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:21769
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    References listed on IDEAS

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    More about this item

    Keywords

    HIV/AIDS; South Africa; Institutions; ROSCAs;
    All these keywords.

    JEL classification:

    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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