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Now or later? The allocation of the pot and the insurance motive in fixed roscas

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  • Baland, Jean-Marie
  • Guirkinger, Catherine
  • Hartwig, Renate

Abstract

We start from the observation that, in fixed roscas in Sub-Saharan African, members often prefer to take the last turn. We argue that, when exchanges of turns are allowed during a cycle, a late turn allows to request the pot when an urgent need arises. Survey data indicate that insurance needs are critical in determining the preferred position of rosca members. We develop a theoretical model to formalize the argument and show that the preference for the last position requires that the probability of a shock is neither too low nor too high. We test this prediction in a lab-in-the-field experiment and confirm that the preference for being last is non-monotonic in the risk of negative shocks.

Suggested Citation

  • Baland, Jean-Marie & Guirkinger, Catherine & Hartwig, Renate, 2019. "Now or later? The allocation of the pot and the insurance motive in fixed roscas," Journal of Development Economics, Elsevier, vol. 140(C), pages 1-11.
  • Handle: RePEc:eee:deveco:v:140:y:2019:i:c:p:1-11
    DOI: 10.1016/j.jdeveco.2019.04.001
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    References listed on IDEAS

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    8. Baland, Jean-Marie & Bonjean, Isabelle & Guirkinger, Catherine & Ziparo, Roberta, 2016. "The economic consequences of mutual help in extended families," Journal of Development Economics, Elsevier, vol. 123(C), pages 38-56.
    9. Mary Kay Gugerty, 2007. "You Can't Save Alone: Commitment in Rotating Savings and Credit Associations in Kenya," Economic Development and Cultural Change, University of Chicago Press, vol. 55, pages 251-282.
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    12. Jonathan Bauchet & Vance Larsen, 2018. "ROSCA Composition and Repayment: Evidence from Taiwanese Bidding ROSCAs," Journal of Development Studies, Taylor & Francis Journals, vol. 54(9), pages 1483-1495, September.
    13. 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.
    14. Anderson, Siwan & Baland, Jean-Marie & Moene, Karl Ove, 2009. "Enforcement in informal saving groups," Journal of Development Economics, Elsevier, vol. 90(1), pages 14-23, September.
    15. Hanming Fang & Rongzhu Ke & Li-An Zhou, 2015. "Rosca Meets Formal Credit Market," PIER Working Paper Archive 15-036, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 23 Oct 2015.
    16. Calomiris, Charles W. & Rajaraman, Indira, 1998. "The role of ROSCAs: lumpy durables or event insurance?," Journal of Development Economics, Elsevier, vol. 56(1), pages 207-216, June.
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    Cited by:

    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. Rabie, Dina, 2021. "RoSCAs in Egypt: A Banking Institution or a Commitment Device?," ILE Working Paper Series 52, University of Hamburg, Institute of Law and Economics.
    3. Premand, Patrick & Stoeffler, Quentin, 2022. "Cash transfers, climatic shocks and resilience in the Sahel," Journal of Environmental Economics and Management, Elsevier, vol. 116(C).
    4. Rediet Abebe & Adam Eck & Christian Ikeokwu & Samuel Taggart, 2022. "An Algorithmic Introduction to Savings Circles," Papers 2203.12486, arXiv.org.
    5. Maitra, Pushkar & Miller, Ray & Sedai, Ashish, 2023. "Household welfare effects of ROSCAs," World Development, Elsevier, vol. 169(C).
    6. Pushkar Maitra & Ray Miller & Ashish Sedai, 2022. "Household Welfare Effects of ROSCAs," Monash Economics Working Papers 2022-14, Monash University, Department of Economics.
    7. Premand, Patrick & Stoeffler, Quentin, 2022. "Cash transfers, climatic shocks and resilience in the Sahel," Journal of Environmental Economics and Management, Elsevier, vol. 116(C).

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    More about this item

    Keywords

    Insurance; Risk; Roscas;
    All these keywords.

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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