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Does Forced Solidarity Hamper Investment in Small and Micro Enterprises?

Michael Grimm, Renate Hartwig and Jann Lay

No 7229, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Sharing is a norm in many societies. We present a theoretical model on the trade-off between sharing and investment which we test on data from tailors in Burkina Faso. The empirical results support the idea that there are two behavioural patterns: entrepreneurs following an 'insurance regime' comply with sharing norms, are insured but reduce investment in their firm, whereas entrepreneurs in the 'growth regime' are not insured but take undistorted investment decisions. The choice of regime depends on the redistributive pressure, the willingness to take risk, and the return on investment.

Keywords: micro and small enterprises; investment; informal insurance; forced solidarity; sharing; Sub-Saharan Africa (search for similar items in EconPapers)
JEL-codes: D13 D22 D92 O12 O43 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2013-02
New Economics Papers: this item is included in nep-afr, nep-ent, nep-ias and nep-mfd
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

Forthcoming - published in: Journal of Comparative Economics, 2017, 45 (4): 827-846.

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