Kin Groups and Reciprocity: A Model of Credit Transactions in Ghana

65 Pages Posted: 5 Feb 2003

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)

Date Written: February 2003

Abstract

This Paper studies kinship-band networks as capital market institutions. It explores two of the channels through which membership in a community where individuals are genealogically linked, such as a kin group, can affect their access to informal credit. The first is that incentives to default are lower for community members who can expect retaliation to fall on their offspring as well as on themselves (social enforcement). The second is that lenders prefer to lend to those members from whom they can expect reciprocation in the form of future loans for themselves or for their children (reciprocity). The possibility to engage in reciprocal transactions affects the terms of the loans in nontrivial ways. The social enforcement and reciprocity effects are incorporated in an overlapping generations repayment game with endogenous matching between lenders and borrowers, and are tested using household-level data from Ghana.

Keywords: Kinship, reciprocity, social norm, informal credit

JEL Classification: J41, O16, O17

Suggested Citation

La Ferrara, Eliana, Kin Groups and Reciprocity: A Model of Credit Transactions in Ghana (February 2003). CEPR Discussion Paper No. 3705. Available at SSRN: https://ssrn.com/abstract=377400

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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