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Roscas as Financial Agreements to Cope with Social Pressure

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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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  • Stefan Ambec & Nicolas Treich, 2003. "Roscas as Financial Agreements to Cope with Social Pressure," CSEF Working Papers 103, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    • Handle: RePEc:sef:csefwp:103
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    1. Siwan Anderson & Jean-Marie Baland, 2002. "The Economics of Roscas and Intrahousehold Resource Allocation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(3), pages 963-995.
    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. 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.
    4. Matthew Rabin & Ted O'Donoghue, 1999. "Doing It Now or Later," American Economic Review, American Economic Association, vol. 89(1), pages 103-124, March.
    5. Geetha Nagarajan & Richard Meyer & Douglas Graham, 1999. "Does Membership Homogeneity Matter for Group‐based Financial Services? Evidence from the Gambia," African Development Review, African Development Bank, vol. 11(1), pages 87-102.
    6. 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.
    7. Jon Elster, 1998. "Emotions and Economic Theory," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 47-74, March.
    8. Anderson, Siwan & Baland, Jean-Marie & Moene, Karl O., 2010. "Sustainability and organizational design in informal groups, with some evidence from Kenyan Roscas," Memorandum 17/2003, Oslo University, Department of Economics.
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    1. Adnan Shoaib & Muhammad Ayub Siddiqui, 2020. "Why do people participate in ROSCA saving schemes? Findings from a qualitative empirical study," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 47(2), pages 177-189, June.
    2. Olivier Dagnelie & Philippe Lemay‐Boucher, 2012. "Rosca Participation in Benin: A Commitment Issue," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 74(2), pages 235-252, April.
    3. Ademola Abimbola. O & Ben-Caleb Egbide & Adegboyegun Adekunle. E & Eluyela Damilola. F & Falaye Adebanjo. J & Ajayi Abiodun. S., 2020. "Rotating and Savings Credit Association (ROSCAs): A Veritable Tool for Enhancing the Performance of Micro and Small Enterprises in Nigeria," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 10(2), pages 189-199, February.
    4. Messan Agbaglah, 2017. "Overlapping coalitions, bargaining and networks," Theory and Decision, Springer, vol. 82(3), pages 435-459, March.
    5. AMANKWAH, ERNEST & Gockel, Fritz Augustine & Osei-Assibey, Eric, 2019. "Pareto Superior dimension of Rotating Savings and Credit Associations (ROSCAs) in Ghana: Evidence from Asunafo North Municipality of Ghana," MPRA Paper 96308, University Library of Munich, Germany.
    6. Sylvain Dessy & Jacques Ewoudou & Isabelle Ouellet, 2006. "Understanding the Persistent Low Performance of African Agriculture," Cahiers de recherche 0622, CIRPEE.

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    More about this item

    Keywords

    Roscas; Social pressure; Stability; Contract; Credit;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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