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Risk sharing and quasi-credit

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  • Marcle Fafchamps

Abstract

Recent empirical evidence indicates that rural households in the Third World smooth consumption through reciprocal gifts and informal credit but fail to achieve Pareto efficiency in risk sharing. Extending previous models of informal contracts as repeated games, this paper shows that several often-described features of informal risk sharing arrangements can be understood as limitations imposed by their self-enforcing nature. We argue that informal credit between friends and relatives is a hybrid transaction, halfway between market exchange and gift giving, whose purpose is to overcome enforcement problems present in pure income pooling arrangements.

Suggested Citation

  • Marcle Fafchamps, 1999. "Risk sharing and quasi-credit," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 8(3), pages 257-278.
  • Handle: RePEc:taf:jitecd:v:8:y:1999:i:3:p:257-278
    DOI: 10.1080/09638199900000016
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    References listed on IDEAS

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    1. Stark, Oded & Lucas, Robert E B, 1988. "Migration, Remittances, and the Family," Economic Development and Cultural Change, University of Chicago Press, vol. 36(3), pages 465-481, April.
    2. Kimball, Miles S, 1988. "Farmers' Cooperatives as Behavior Toward Risk," American Economic Review, American Economic Association, vol. 78(1), pages 224-232, March.
    3. Marcel Fafchamps & Bart Minten, 1999. "Relationships and traders in Madagascar," Journal of Development Studies, Taylor & Francis Journals, vol. 35(6), pages 1-35.
    4. Basu, Kaushik, 1986. "One Kind of Power," Oxford Economic Papers, Oxford University Press, vol. 38(2), pages 259-282, July.
    5. Arne Bigsten & Paul Collier & Stefan Dercon & Marcel Fafchamps & Bernard Gauthier & Jan Willem Gunning & Abena Oduro & Remco Oostendorp & Catherine Pattillo & Måns Söderbom & Francis Teal & Albert Zeu, 1998. "Contract flexibility and conflict resolution: Evidence from African manufacturing," CSAE Working Paper Series 1998-21, Centre for the Study of African Economies, University of Oxford.
    6. Andrew D. Foster & Mark R. Rosenzweig, 2001. "Imperfect Commitment, Altruism, And The Family: Evidence From Transfer Behavior In Low-Income Rural Areas," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 389-407, August.
    7. repec:fth:oxesaf:98-21 is not listed on IDEAS
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    More about this item

    Keywords

    01; D1;

    JEL classification:

    • D1 - Microeconomics - - Household Behavior

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