Roscas as Financial Agreements to Cope with Social Pressure
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.
|Date of creation:||01 Jun 2003|
|Publication status:||Published in Journal of Development Economics 2007, vol. 82, pages 120-137|
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