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

  • 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)

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.

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File URL: http://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2003/Memo-17-2003.pdf
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Paper provided by Oslo University, Department of Economics in its series Memorandum with number 17/2003.

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Length: 49 pages
Date of creation: 05 Feb 2010
Date of revision:
Handle: RePEc:hhs:osloec:2003_017
Contact details of provider: Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Phone: 22 85 51 27
Fax: 22 85 50 35
Web page: http://www.oekonomi.uio.no/indexe.html
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