Roscas as financial agreements to cope with self-control problems |
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Institution: | 1. Institute for International Economic Studies, Stockholm University, SE-106 91 Stockholm, Sweden;2. STICERD and the Department of Economics, London School of Economics, Houghton Street, London WC2A 2AE, UK |
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Abstract: | We consider a model in which people with limited self-control can sign binding financial agreements among themselves, thereby forming coalitions. We show that these financial agreements may help them to alleviate their self-control problems. We then demonstrate that there exists a stable structure of coalitions in which people form rotating savings and credit associations (roscas). We therefore provide a behavioral rationale for one of the most prevalent and puzzling financial institutions in developing countries. Finally, we derive and discuss some empirical predictions. |
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