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Does Forced Solidarity Hamper Investment in Small and Micro Enterprises?

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  • Grimm, Michael

    (University of Passau)

  • Hartwig, Renate

    (University of Namur)

  • Lay, Jann

    (German Institute of Global and Area Studies (GIGA))

Abstract

Sharing is a norm in many societies. We present a theoretical model on the trade-off between sharing and investment which we test on data from tailors in Burkina Faso. The empirical results support the idea that there are two behavioural patterns: entrepreneurs following an 'insurance regime' comply with sharing norms, are insured but reduce investment in their firm, whereas entrepreneurs in the 'growth regime' are not insured but take undistorted investment decisions. The choice of regime depends on the redistributive pressure, the willingness to take risk, and the return on investment.

Suggested Citation

  • Grimm, Michael & Hartwig, Renate & Lay, Jann, 2013. "Does Forced Solidarity Hamper Investment in Small and Micro Enterprises?," IZA Discussion Papers 7229, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp7229
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    More about this item

    Keywords

    micro and small enterprises; investment; informal insurance; forced solidarity; sharing; Sub-Saharan Africa;
    All these keywords.

    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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