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Does Forced Solidarity Hamper Investment in Small and Micro Enterprises?

  • Grimm, Michael


    (University of Passau)

  • Hartwig, Renate


    (University of Passau)

  • Lay, Jann


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

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.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7229.

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Length: 44 pages
Date of creation: Feb 2013
Date of revision:
Handle: RePEc:iza:izadps:dp7229
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  1. Jean-Marie Baland & Catherine Guirkinger & Charlotte Mali, 2011. "Pretending to Be Poor: Borrowing to Escape Forced Solidarity in Cameroon," Economic Development and Cultural Change, University of Chicago Press, vol. 60(1), pages 1 - 16.
  2. repec:oup:qjecon:v:123:y:2008:i:4:p:1329-1372 is not listed on IDEAS
  3. Marcel Fafchamps, 2002. "Returns to social network capital among traders," Oxford Economic Papers, Oxford University Press, vol. 54(2), pages 173-206, April.
  4. Alger, Ingela & Weibull, Jörgen, 2007. "Family ties, incentives and development: a model of coerced altruism," SSE/EFI Working Paper Series in Economics and Finance 681, Stockholm School of Economics.
  5. Esther Duflo & Michael Kremer & Jonathan Robinson, 2009. "Nudging Farmers to Use Fertilizer: Theory and Experimental Evidence from Kenya," NBER Working Papers 15131, National Bureau of Economic Research, Inc.
  6. Fafchamps, Marcel; McKenzie; Quinn, Simon; Woodruff, Christopher, 2011. "When is capital enough to get female microenterprises growing? Evidence from a randomized experiment in Ghana," CAGE Online Working Paper Series 50, Competitive Advantage in the Global Economy (CAGE).
  7. Michael Lokshin & Zurab Sajaia, 2004. "Maximum likelihood estimation of endogenous switching regression models," Stata Journal, StataCorp LP, vol. 4(3), pages 282-289, September.
  8. Grimm, Michael & Kruger, Jens & Lay, Jann, 2011. "Barriers to entry and returns to capital in informal activities : evidence from Sub-Saharan Africa," Social Protection Discussion Papers 77927, The World Bank.
  9. Jakiela, Pamela & Ozier, Owen, 2012. "Does Africa need a rotten Kin Theorem ? experimental evidence from village economies," Policy Research Working Paper Series 6085, The World Bank.
  10. Cameron,A. Colin & Trivedi,Pravin K., 2005. "Microeconometrics," Cambridge Books, Cambridge University Press, number 9780521848053.
  11. David McKenzie & Christopher Woodruff, 2008. "Experimental Evidence on Returns to Capital and Access to Finance in Mexico," World Bank Economic Review, World Bank Group, vol. 22(3), pages 457-482, November.
  12. Brune, Lasse & Gine, Xavier & Goldberg, Jessica & Yang, Dean, 2011. "Commitments to save : a field experiment in rural Malawi," Policy Research Working Paper Series 5748, The World Bank.
  13. Fafchamps, Marcel & Pender, John, 1997. "Precautionary Saving, Credit Constraints, and Irreversible Investment: Theory and Evidence from Semiarid India," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(2), pages 180-94, April.
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