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Rotating Savings and Credit Associations as Insurance

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  • Stefan Klonner

    (Universitaet Heidelberg)

Abstract

Recent theoretical research on rotating savings and credit associations (Roscas) suggests that identical individuals prefer a random to a bidding Rosca when participants save for a lumpy durable or an investment good. Here,in contrast, under the assumption that participants are risk averse and that their incomes are stochastic and independent, it is shown that a random Rosca is not advantageous, while participation in a bidding Rosca improves ex ante expected utility if temporal risk aversion is less pronounced than static risk aversion. When information on individual incomes is private, fixed contributions to a bidding Rosca help to mitigate the problem of information asymmetries. When information on incomes is public, a lack of enforceability of variable contributions may explain the existence of Roscas instead of more efficient insurance arrangements.

Suggested Citation

  • Stefan Klonner, 2000. "Rotating Savings and Credit Associations as Insurance," Econometric Society World Congress 2000 Contributed Papers 1589, Econometric Society.
    • Handle: RePEc:ecm:wc2000:1589
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    References listed on IDEAS

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    1. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-591, May.
    2. Kovsted, Jens & Lyk-Jensen, Peter, 1999. "Rotating savings and credit associations: the choice between random and bidding allocation of funds," Journal of Development Economics, Elsevier, vol. 60(1), pages 143-172, October.
    3. Besley, Timothy & Coate, Stephen & Loury, Glenn, 1993. "The Economics of Rotating Savings and Credit Associations," American Economic Review, American Economic Association, vol. 83(4), pages 792-810, September.
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    6. repec:adr:anecst:y:1993:i:29:p:06 is not listed on IDEAS
    7. Handa, Sudhanshu & Kirton, Claremont, 1999. "The economics of rotating savings and credit associations: evidence from the Jamaican 'Partner'," Journal of Development Economics, Elsevier, vol. 60(1), pages 173-194, October.
    8. Levenson, Alec R. & Besley, Timothy, 1996. "The anatomy of an informal financial market: Rosca participation in Taiwan," Journal of Development Economics, Elsevier, vol. 51(1), pages 45-68, October.
    9. Timothy Besley & Stephen Coate & Glenn Loury, 1994. "Rotating Savings and Credit Associations, Credit Markets and Efficiency," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(4), pages 701-719.
    10. 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.
    11. Scott F. Richard, 1975. "Multivariate Risk Aversion, Utility Independence and Separable Utility Functions," Management Science, INFORMS, vol. 22(1), pages 12-21, September.
    12. Thomas, D., 1992. "The Distribution of Income and Expenditure within the Household," Papers 669, Yale - Economic Growth Center.
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    Citations

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    Cited by:

    1. Christy Chung Hevener, 2006. "Alternative financial vehicles: rotating savings and credit associations (ROSCAs)," Community Affairs Discussion Paper 06-01, Federal Reserve Bank of Philadelphia.
    2. Thieme, Susan., 2003. "Savings and credit associations and remittances : the case of Far West Nepalese labour migrants in Delhi, India," ILO Working Papers 993632993402676, International Labour Organization.
    3. 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.
    4. Thilo Klein, 2015. "Does Anti-Diversification Pay? A One-Sided Matching Model of Microcredit," Cambridge Working Papers in Economics 1521, Faculty of Economics, University of Cambridge.
    5. AMANKWAH, ERNEST & Gockel, Fritz Augustine & Osei-Assibey, Eric, 2019. "Pareto Superior dimension of Rotating Savings and Credit Associations (ROSCAs) in Ghana: Evidence from Asunafo North Municipality of Ghana," MPRA Paper 96308, University Library of Munich, Germany.
    6. Hanming Fang & Rongzhu Ke & Li-An Zhou, 2015. "Rosca Meets Formal Credit Market," NBER Working Papers 21683, National Bureau of Economic Research, Inc.
    7. Stefan Klonner, 2003. "Empirical Analysis of Rosca Auctions in a South Indian Village," Working Papers 854, Economic Growth Center, Yale University.
    8. Klonner, Stefan, 2003. "Buying Fields and Marrying Daughters: An Empirical Analysis of Rosca Auctions in a South Indian Village," Center Discussion Papers 28449, Yale University, Economic Growth Center.
    9. repec:ilo:ilowps:363299 is not listed on IDEAS

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