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The economics of rotating savings and credit associations

Besley, Timothy and Coate, Stephen and Loury, Glenn (1993) The economics of rotating savings and credit associations. American Economic Review, 83 (4). pp. 792-810. ISSN 0002-8282

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This paper analyzes the economic role and performance of a type of financial institution which is observed worldwide: 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 individuals have identical tastes. This conclusion need not hold when individuals are heterogeneous. We also discuss the sustainability of Roscas given the possibility of default.

Item Type: Article
Official URL:
Additional Information: © 1993 American Economic Association
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Sets: Departments > Economics
Collections > Economists Online
Date Deposited: 27 Apr 2007
Last Modified: 24 Apr 2012 10:12

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