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

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  • La Ferrara, Eliana

Abstract

This Paper studies kinship-band networks as capital market institutions. It explores two of the channels through which membership in a community where individuals are genealogically linked, such as a kin group, can affect their access to informal credit. The first is that incentives to default are lower for community members who can expect retaliation to fall on their offspring as well as on themselves (social enforcement). The second is that lenders prefer to lend to those members from whom they can expect reciprocation in the form of future loans for themselves or for their children (reciprocity). The possibility to engage in reciprocal transactions affects the terms of the loans in nontrivial ways. The social enforcement and reciprocity effects are incorporated in an overlapping generations repayment game with endogenous matching between lenders and borrowers, and are tested using household-level data from Ghana.

Suggested Citation

  • La Ferrara, Eliana, 2003. "Kin Groups and Reciprocity: A Model of Credit Transactions in Ghana," CEPR Discussion Papers 3705, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:3705
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    More about this item

    Keywords

    Kinship; Reciprocity; Social norm; Informal credit;
    All these keywords.

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • 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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