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Gift-Giving, Quasi-Credit and Reciprocity

  • Jonathan P. Thomas
  • Tim Worrall

The fluctuations in incomes inherent in rural communities can be attenuated by reciprocal insurance. We develop a model of such insurance based on self-interested behaviour and voluntary participation. One individual assists another only if the costs of so doing are outweighed by the benefits from expected future reciprocation. A distinction is made between general reciprocity where the counter obligation is expected but not certain and balanced reciprocity where there is a firm counter obligation. This firm counter obligation is reflected by including a loan or quasi-credit element in any assistance. It is shown how this can increase the insurance provided and how it may explain the widespread use of quasi-credit in rural communities. Moreover it is shown that for a range of parameter values consistent with evidence from three villages in southern India, a simple scheme of gift-giving and quasi-credit can do almost as well as theoretically better but more complicated schemes.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 687.

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Date of creation: 2002
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Handle: RePEc:ces:ceswps:_687
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  1. Besley, T. & Coate, S. & Loury, G., 1990. "The Economics Of Rotating Savings And Credit Associations," Working papers 556, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. repec:cup:cbooks:9780521550123 is not listed on IDEAS
  3. Richard A. Posner, 1979. "A Theory of Primitive Society with Special Reference to Law," University of Chicago - George G. Stigler Center for Study of Economy and State 7, Chicago - Center for Study of Economy and State.
  4. Kimball, Miles S, 1988. "Farmers' Cooperatives as Behavior Toward Risk," American Economic Review, American Economic Association, vol. 78(1), pages 224-32, March.
  5. Townsend, R.M., 1991. "Risk and Insurance in Village India," University of Chicago - Economics Research Center 91-3, Chicago - Economics Research Center.
  6. Mark Rosenzweig & Andrew D. Foster, 1995. "Imperfect Commitment, Altruism, and the Family: Evidence from Transfer Behavior in Low-Income Rural Areas," Home Pages _075, University of Pennsylvania.
  7. Telser, L G, 1980. "A Theory of Self-enforcing Agreements," The Journal of Business, University of Chicago Press, vol. 53(1), pages 27-44, January.
  8. Ruffle, Bradley J., 1999. "Gift giving with emotions," Journal of Economic Behavior & Organization, Elsevier, vol. 39(4), pages 399-420, July.
  9. Udry, Christopher, 1994. "Risk and Insurance in a Rural Credit Market: An Empirical Investigation in Northern Nigeria," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 495-526, July.
  10. Pender, John L., 1996. "Discount rates and credit markets: Theory and evidence from rural india," Journal of Development Economics, Elsevier, vol. 50(2), pages 257-296, August.
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