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Kin Groups and Reciprocity: A Model of Credit Transactions in Ghana

  • Eliana La Ferrara

This paper studies kinship band networks as capital market institutions. Membership in a community where individuals are dynastically linked has two effects on informal credit. First, the nonanonymity of the dynastic link allows to sanction the defaulters' offspring and induce compliance even in short-term interactions (social enforcement). Second, preferential agreements can arise in which kin members condition their behavior on the characteristics of a player's predecessor, expecting others to do the same with their offspring (reciprocity). These effects are incorporated in an OLG game with endogenous matching between lenders and borrowers and tested using household-level data from Ghana.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 93 (2003)
Issue (Month): 5 (December)
Pages: 1730-1751

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Handle: RePEc:aea:aecrev:v:93:y:2003:i:5:p:1730-1751
Note: DOI: 10.1257/000282803322655518
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