Does Forced Solidarity Hamper Investment in Small and Micro Enterprises?

44 Pages Posted: 9 Mar 2013

See all articles by Michael Grimm

Michael Grimm

Erasmus University Rotterdam; University of Passau; IZA; DIW Berlin

Renate Hartwig

University of Passau

Jann Lay

GIGA German Institute of Global and Area Studies; University of Goettingen

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: forced solidarity, informal insurance, investment, micro and small enterprises, sharing, Sub-Saharan Africa

JEL Classification: D13, D22, D92, O12, O43

Suggested Citation

Grimm, Michael and Hartwig, Renate and Lay, Jann, Does Forced Solidarity Hamper Investment in Small and Micro Enterprises?. IZA Discussion Paper No. 7229. Available at SSRN: https://ssrn.com/abstract=2230791

Michael Grimm (Contact Author)

Erasmus University Rotterdam ( email )

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HOME PAGE: http://www.iss.nl

University of Passau ( email )

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HOME PAGE: http://www.wiwi.uni-passau.de/grimm.html

IZA ( email )

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DIW Berlin ( email )

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Renate Hartwig

University of Passau

Innstrasse 27
Passau, 94032
Germany

Jann Lay

GIGA German Institute of Global and Area Studies ( email )

Neuer Jungfernstieg 21
Hamburg, DE D-20354
Germany

University of Goettingen

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany

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