Enforcement and Organizational Design in Informal Saving Groups. BREAD working paper no. 74; journal of development economics, 2009

S. Anderson, Jean-Marie Baland, K.O. Moene

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Résumé

Informal groups cannot rely on external enforcement to insure that members abide by their obligations. It is generally assumed that these problems are solved by `social sanctions' and reputational effects. The present paper focuses on roscas, one of the most commonly found informal financial institutions in the developing world. We first show that, in the absence of an external (social) sanctioning mechanism, roscas are never sustainable, even if the defecting member is excluded from all future roscas. We then argue that the organizational structure of the rosca itself can be designed so as to address enforcement issues. The implications of our analysis are tested against first-hand evidence from rosca groups in a Kenyan slum.
langue originaleAnglais
étatPublié - 2009

Empreinte digitale

Development economics
Organizational design
Enforcement
Developing world
Sanctions
Slums
Financial institutions
Obligation
Social mechanisms
Organizational structure

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abstract = "Informal groups cannot rely on external enforcement to insure that members abide by their obligations. It is generally assumed that these problems are solved by `social sanctions' and reputational effects. The present paper focuses on roscas, one of the most commonly found informal financial institutions in the developing world. We first show that, in the absence of an external (social) sanctioning mechanism, roscas are never sustainable, even if the defecting member is excluded from all future roscas. We then argue that the organizational structure of the rosca itself can be designed so as to address enforcement issues. The implications of our analysis are tested against first-hand evidence from rosca groups in a Kenyan slum.",
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N2 - Informal groups cannot rely on external enforcement to insure that members abide by their obligations. It is generally assumed that these problems are solved by `social sanctions' and reputational effects. The present paper focuses on roscas, one of the most commonly found informal financial institutions in the developing world. We first show that, in the absence of an external (social) sanctioning mechanism, roscas are never sustainable, even if the defecting member is excluded from all future roscas. We then argue that the organizational structure of the rosca itself can be designed so as to address enforcement issues. The implications of our analysis are tested against first-hand evidence from rosca groups in a Kenyan slum.

AB - Informal groups cannot rely on external enforcement to insure that members abide by their obligations. It is generally assumed that these problems are solved by `social sanctions' and reputational effects. The present paper focuses on roscas, one of the most commonly found informal financial institutions in the developing world. We first show that, in the absence of an external (social) sanctioning mechanism, roscas are never sustainable, even if the defecting member is excluded from all future roscas. We then argue that the organizational structure of the rosca itself can be designed so as to address enforcement issues. The implications of our analysis are tested against first-hand evidence from rosca groups in a Kenyan slum.

M3 - Other contribution

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