Reciprocity and exclusion in informal financial institutions: An experimental study of rotating savings and credit associations
Year: 2018
Type: article
Abstract: Group cooperation is fundamental to human society. The public goods game is often used to describe the difficulty of group cooperation. However, there are other structures of institutions to maintain group cooperation such as Rotating savings and credit associations (ROSCAs). ROSCAs are informal financial institutions that exist worldwide, in which all participants contribute to a common fund and take turns to receive a return. ROSCAs are common in developing countries and among migrant groups in developed countries. There are various types of ROSCAs, and they share a crucial problem in that participants whose turn to receive a return has passed have an incentive to default on their contributions. We conducted a laboratory experiment to investigate the mechanisms that can prevent default in a fixed ROSCA, in which the order of receipt of returns is determined before starting and is also known to members. The findings are as follows. (i) Excluding low contributors from ROSCA groups by voting increased contribution rates both before and after the receipt of returns. (ii) ROSCA members exhibited reciprocity and a sense of revenge: that is, members contributed to the returns payments of other members who had contributed to them, and did not contribute to the returns payments of non-contributors. Voluntary behaviors thus sustained ROSCAs. Meanwhile, an exogenous punishment whereby subjects were prevented from receiving returns payments unless they had themselves contributed previously did not increase contribution rates.
Source: PLoS ONE
Language: English
Subfield: Safety Research
Field: Social Sciences
Domain: Social Sciences
Open Access status: gold
Estimated APC paid: $2,382
Awards: Theoretical and Experimental Research on Money and Market System in the Pacific Island Countries, Theoretical and experimental studies about sustainable usege of commons from the viewpoint of rules and spatial structure, Enforsability of non-binding agreements - a game theoretic appproach, Studies on Effects of Multiplicity of Equilibria and Indivisibility of Commodities on Competitive Economies, Mechanism Design in Economies with Externalities: Theory and Experiments, The effect of institutions and norms on sustainability of ecosystem
OpenAlex ID: W2270538186