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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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    Cited by:

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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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