IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp15383.html

On the Optimal Size of a Joint Savings Association

Author

Listed:
  • Stark, Oded

    (University of Bonn)

  • Budzinski, Wiktor

    (University of Warsaw)

  • Jakubek, Marcin

    (Institute of Economics, Polish Academy of Sciences)

  • Kosiorowski, Grzegorz

    (Cracow University of Economics)

Abstract

We develop a formula for the optimal size of a joint savings association between individuals who share the same financial goal and who can save towards that goal at the same rate. Our motivating example and the core of our analysis is a Rotating Savings and Credit Association (ROSCA). We measure the efficiency of a ROSCA by the expected waiting time that it takes a participant to attain his goal when no participant reneges on his commitment to contribute to the common fund, and when each of the participants receives (once) the funds needed to meet his goal. Given this criterion, we define the optimal size of a ROSCA as the number of participants that results in the minimal expected waiting time. We show that an optimal size of a ROSCA exists, that it is limited, and that it is a multiple of the number of time periods that it takes an individual to save on his own. Somewhat surprisingly, we find that when treated as a function of the size of a ROSCA, the expected waiting time is not monotonic when the size builds up from an individual saving on his own to the optimal size. A similar result obtains when we study cases where a ROSCA is enlarged beyond the optimal size. Our findings help explain the limited size as well as other features of ROSCAs observed in developing countries all over the world.

Suggested Citation

  • Stark, Oded & Budzinski, Wiktor & Jakubek, Marcin & Kosiorowski, Grzegorz, 2022. "On the Optimal Size of a Joint Savings Association," IZA Discussion Papers 15383, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp15383
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp15383.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D16 - Microeconomics - - Household Behavior - - - Collaborative Consumption
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • P13 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Cooperative Enterprises

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp15383. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.