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Inequality and Group Participation: Theory and Evidence from Rural Tanzania

  • Eliana La Ferrara

This paper investigates the determinants of group membership, and in particular the effect of income inequality on individual incentives to join economic groups. Drawing on a simple model, we show that an increase in inequality has an ambiguous effect and that the type of access rule (open versus restricted access) is key in determining what income categories are represented in the group. Furthermore, the shape of the income distribution can be crucial to determine whether increased inequality leads to more or less group participation. Using survey data from rural Tanzania we find that inequality at the village level has a negative impact on the likelihood that the respondents are members of any group. This effect is particularly significant for relatively wealthier people, both when relative wealth is "objectively" measured, and when it is "subjectively" defined. However, when we disaggregate groups by type of access rule, we find that inequality decreases participation in open access groups when there are wide disparities at the bottom of the distribution, while it increases participation in restricted access groups when the disparities are around the middle and top part of the distribution. Finally we assess the impact of inequality on various dimensions of group functioning.

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Paper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 161.

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Handle: RePEc:igi:igierp:161
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  1. Isham, Jonathan & Narayan, Deepa & Pritchett, Lant, 1995. "Does Participation Improve Performance? Establishing Causality with Subjective Data," World Bank Economic Review, World Bank Group, vol. 9(2), pages 175-200, May.
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  4. Alberto Alesina & Eliana La Ferrara, 1999. "Participation in Heterogeneous Communities," NBER Working Papers 7155, National Bureau of Economic Research, Inc.
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  15. Kevin Roberts, 1999. "Dynamic Voting in Clubs," STICERD - Theoretical Economics Paper Series 367, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  16. Narayan, Deepa & Pritchett, Lant, 1997. "Cents and sociability : household income and social capital in rural Tanzania," Policy Research Working Paper Series 1796, The World Bank.
  17. Gaspart, Frederic, et al, 1998. "Participation in the Construction of a Local Public Good with Indivisibilities: An Application to Watershed Development in Ethiopia," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 7(2), pages 157-84, July.
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