Inequality and Group Participation: Theory and Evidence from Rural Tanzania

IGIER Working Paper No. 161

47 Pages Posted: 15 Mar 2000

See all articles by Eliana La Ferrara

Eliana La Ferrara

University of Bocconi - Innocenzo Gasparini Institute for Economic Research (IGIER); Centre for Economic Policy Research (CEPR)

Abstract

This paper investigates the determinants of group membership, and in particular the effect of income inequality on individual incentives to join economic groups. Drawing on a simple model, we show that an increase in inequality has an ambiguous effect and that the type of access rule (open versus restricted access) is key in determining what income categories are represented in the group. Furthermore, the shape of the income distribution can be crucial to determine whether increased inequality leads to more or less group participation. Using survey data from rural Tanzania we find that inequality at the village level has a negative impact on the likelihood that the respondents are members of any group. This effect is particularly significant for relatively wealthier people, both when relative wealth is "objectively" measured, and when it is "subjectively" defined. However, when we disaggregate groups by type of access rule, we find that inequality decreases participation in open access groups when there are wide disparities at the bottom of the distribution, while it increases participation in restricted access groups when the disparities are around the middle and top part of the distribution. Finally we assess the impact of inequality on various dimensions of group functioning.

JEL Classification: D31, D71, O12

Suggested Citation

La Ferrara, Eliana, Inequality and Group Participation: Theory and Evidence from Rural Tanzania. IGIER Working Paper No. 161. Available at SSRN: https://ssrn.com/abstract=212169 or http://dx.doi.org/10.2139/ssrn.212169

Eliana La Ferrara (Contact Author)

University of Bocconi - Innocenzo Gasparini Institute for Economic Research (IGIER) ( email )

Via Roentgen 1
Milan, 20136
Italy
+39 02 5836 3328 (Phone)
+39 02 5836 3302 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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