The Economics of Rotating Savings and Credit Associations

Timothy Besley, Stephen Coate and Glenn Loury

Boston University - Institute for Economic Development from Boston University, Institute for Economic Development

Abstract: This paper analyzes the economic role and performance of a type of financial insti- tution which is observed world-wide - rotating savings and credit associations (Roscas). Using a model in which individuals save for an indivisible durable consumption good, we study Roscas which distribute funds using random allocation and bidding. Each type of Rosca allows individuals without access to credit markets to improve their welfare but, under a reasonable assumption on preferences, random allocation is preferred when indivi- duals have identical tastes. This conclusion does not generally hold when individuals are heterogeneous. We also discuss the sustainability of Roscas given the possibility of default.

Date: 1992-02
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Related works:
Journal Article: The Economics of Rotating Savings and Credit Associations (1993)
Working Paper: The economics of Rotating Savings and Credit Associations (1992)
Working Paper: THE ECONOMICS OF ROTATING SAVINGS AND CREDIT ASSOCIATIONS (1990)
Working Paper: THE ECONOMICS OF ROTATING SAVINGS AND CREDIT ASSOCIATIONS (1990)
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Persistent link: https://EconPapers.repec.org/RePEc:fth:bosecd:24

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