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Roscas as Financial Agreements to Cope with Social Pressure

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Abstract

In developing countries, traditional social obligations often press rich individuals to share their income. In this paper, we posit a "model of social pressure" in which people can sign binding financial agreements amongst themselves, thereby forming coalitions. These financial agreements may help them to alleviate their social obligations with respect to income sharing. In the above context, we show that there exists a stable structure of coalitions in which people form rotating savings and credit associations (roscas). We therefore provide a rationale for one of the most prevalent and puzzling financial institutions.

Suggested Citation

  • Stefan Ambec & Nicolas Treich, 2003. "Roscas as Financial Agreements to Cope with Social Pressure," CSEF Working Papers 103, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  • Handle: RePEc:sef:csefwp:103
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    References listed on IDEAS

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    1. Platteau, J.P., 1996. "Traditional Sharing Norms as an Obstacle to Economic Growth in Tribal Societies," Papers 173, Notre-Dame de la Paix, Sciences Economiques et Sociales.
    2. Besley, Timothy & Coate, Stephen & Loury, Glenn, 1993. "The Economics of Rotating Savings and Credit Associations," American Economic Review, American Economic Association, vol. 83(4), pages 792-810, September.
    3. Matthew Rabin & Ted O'Donoghue, 1999. "Doing It Now or Later," American Economic Review, American Economic Association, vol. 89(1), pages 103-124, March.
    4. Levenson, Alec R. & Besley, Timothy, 1996. "The anatomy of an informal financial market: Rosca participation in Taiwan," Journal of Development Economics, Elsevier, vol. 51(1), pages 45-68, October.
    5. Siwan Anderson & Jean-Marie Baland, 2002. "The Economics of Roscas and Intrahousehold Resource Allocation," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 963-995.
    6. Jon Elster, 1998. "Emotions and Economic Theory," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 47-74, March.
    7. Anderson, Siwan & Baland, Jean-Marie & Moene, Karl O., 2010. "Sustainability and organizational design in informal groups, with some evidence from Kenyan Roscas," Memorandum 17/2003, Oslo University, Department of Economics.
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    Cited by:

    1. Olivier Dagnelie & Philippe Lemay‐Boucher, 2012. "Rosca Participation in Benin: A Commitment Issue," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 74(2), pages 235-252, April.
    2. Sylvain Dessy & Jacques Ewoudou & Isabelle Ouellet, 2006. "Understanding the Persistent Low Performance of African Agriculture," Cahiers de recherche 0622, CIRPEE.

    More about this item

    Keywords

    Roscas; Social pressure; Stability; Contract; Credit;

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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