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Sustainability and organizational design in informal groups, with some evidence from Kenyan Roscas

Author

Listed:
  • Anderson, Siwan

    () (Department of Economics, University of British Columbia)

  • Baland, Jean-Marie

    () (CRED, University of Namur)

  • Moene, Karl O.

    () (Dept. of Economics, University of Oslo)

Abstract

Informal groups cannot rely on external enforcement to insure that members abide by their obligations. It is generally assumed that these problems are solved by "social sanctions" and reputational effects. The present paper focuses on roscas, one of the most commonly found informal financial institutions in the developing world. We first show that, in the absence of an external (social) sanctioning mechanism, roscas are never sustainable, even if the defecting member is excluded from all future roscas. We then argue that the organizational structure of the rosca itself can be designed so as to reduce the severity of enforcement issues. The implications of our analysis are tested against first-hand evidence from rosca groups in a Kenyan slum.

Suggested Citation

  • Anderson, Siwan & Baland, Jean-Marie & Moene, Karl O., 2010. "Sustainability and organizational design in informal groups, with some evidence from Kenyan Roscas," Memorandum 17/2003, Oslo University, Department of Economics.
  • Handle: RePEc:hhs:osloec:2003_017
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    File URL: http://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2003/Memo-17-2003.pdf
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    Cited by:

    1. Ambec, S. & Treich, N., 2003. "Roscas as financial agreements to cope with social pressure," Working Papers 200301, Grenoble Applied Economics Laboratory (GAEL).
    2. Ozgur Emre Ergungor, 2010. "Bank Branch Presence and Access to Credit in Low- to Moderate-Income Neighborhoods," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(7), pages 1321-1349, October.

    More about this item

    Keywords

    Roscas; informal financial institutions; developing world;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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