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Are Gifts and Loans between Households Voluntary?

  • Marcel Fafchamps
  • Margherita Comola

Using village data from Tanzania, we test whether gifts and loans between households are voluntary while correcting for mis-reporting by the giving and receiving households. Two maintained assumptions underlie our analysis: answers to a question on who people would turn to for help are good proxies for willingness to link; and, conditional on regressors, the probability of reporting a gift or loan is independent between giving and receiving households. Building on these assumptions, we develop a new estimation methodology that corrects for response bias. Our testing strategy is based on the idea that, if lending and gift giving are voluntary, then both households should want to rely on each other for help. We find only weak evidence to support bilateral link formation. We do, however, find reasonably strong evidence to support unilateral link formation. Results suggest that if a household wishes to enter in a reciprocal relationship with someone who is sufficiently close socially and geographically, it can do so unilaterally.

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File URL: http://www.csae.ox.ac.uk/workingpapers/pdfs/2010-20text.pdf
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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number CSAE WPS/2010-20.

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Date of creation: 01 Jun 2010
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Handle: RePEc:oxf:wpaper:csae-wps/2010-20
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  1. Ethan Ligon & Jonathan P Thomas & Tim Worrall, 1997. "Informal Insurance Arrangements in Village Economies," CRIEFF Discussion Papers 9705, Centre for Research into Industry, Enterprise, Finance and the Firm.
  2. Andrew D. Foster & Mark R. Rosenzweig, 2001. "Imperfect Commitment, Altruism, And The Family: Evidence From Transfer Behavior In Low-Income Rural Areas," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 389-407, August.
  3. Siwan Anderson, 2000. "The Economics of Roscas and Intra-Household Resource Allocation," Econometric Society World Congress 2000 Contributed Papers 1323, Econometric Society.
  4. Comola, Margherita & Fafchamps, Marcel, 2009. "Testing Unilateral and Bilateral Link Formation," CEPR Discussion Papers 7406, C.E.P.R. Discussion Papers.
  5. Marcel Fafchamps & Susan Lund, . "Risk Sharing Networks in Rural Philippines," Working Papers 97014, Stanford University, Department of Economics.
  6. Arcand, Jean-Louis & Fafchamps, Marcel, 2012. "Matching in community-based organizations," Journal of Development Economics, Elsevier, vol. 98(2), pages 203-219.
  7. repec:pse:psecon:2009-30 is not listed on IDEAS
  8. Stefan Dercon & Joachim de Weerdt, 2004. "Risk-Sharing Networks And Insurance Against Illness," Development and Comp Systems 0409019, EconWPA.
  9. Hayami, Y & Platteau, J-P, 1997. "Resource Endowments and Agricultural Development : Africa vs. Asia," Papers 192, Notre-Dame de la Paix, Sciences Economiques et Sociales.
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