Social Norms and Individual Savings in the Context of Informal Insurance

This paper develops a theory of informal insurance in the presence of an intertemporal technology. It is shown that when an insurance agreement suffers from enforcement problems, constraints on individual savings behaviour can enable the group to sustain greater cooperation. This result provides a motivation for a variety of social norms observed in traditional societies which discourage 'excessive' accumulation of wealth by individuals. The paper also shows that social norms that discourage savings are more likely to benefit poorer communities and thus, paradoxically, cause them to fall further behind even as it serves a useful purpose.

Gender, Social Norms and Household Production in Burkina Faso.

Empirical studies of intra-household allocation has revealed that, in many instances, gender is an important determinant in the allocation of resources within the household. Yet, within the theoretical literature, why gender matters within the household remains an open question. In this paper, we propose a simple model of intra-household allocation based on a particular social institution for the organisation of agricultural production practised among certain ethnic groups in West Africa. We highlight how this institution, while resolving certain problems of commitment and informational asymmetry, can also lead to a gendered pattern in the allocation of productive resources and consumption within the household. Using a survey of agricultural households in Burkina Faso, we show, consistent with this theory, that plots owned by the head of the household are farmed more intensively, and achieves higher yields, than plots with similar characteristics owned by other household members. Male and female family members who do not head the household achieve similar yields. We argue that the higher yields achieved by the household head may be explained in terms of social norms that require him to spend the earnings from some plots under his control exclusively on household public goods, which in turn provides other family members the incentive to voluntarily contribute labour on his farms. Using expenditures data, and measures of rainfall to capture weather-related shocks to agricultural income, we show that the household head has, indeed, a higher marginal propensity to spend on household public goods than other household members. The fact that the head of the household is usually male accounts for the gendered pattern in labour allocation and yields across different farm plots.

Public Good Provision in Indian Rural Areas : The Returns to Collective Action by Microfinance Groups

Self-help groups (SHGs) are the most common form of microfinance in India. The authors provide evidence that SHGs, composed of women only, undertake collective actions for the provision of public goods within village communities. Using a theoretical model, this paper shows that an elected official, whose aim is to maximize reelection chances, exerts higher effort in providing public goods when private citizens undertake collective action and coordinate their voluntary contributions towards the same goods. This effect occurs although government and private contributions are assumed to be substitutes in the technology of providing public goods. Using first-hand data on SHGs in India, the paper tests the prediction of the model and shows that, in response to collective action by SHGs, local authorities tackle a larger variety of public issues, and are more likely to tackle issues of interest to SHGs. The findings highlight how the social behavior of SHGs can influence the governance of rural Indian communities

Microfinance and Gender Empowerment

In the past 30 years, microfinance has carried many promises of social and economic transformation, with the shift towards targeting women being seen as a major strategic move through which the promise of social development could be most e¤ectively delivered. However, ethnographic studies have shown that many women relinquish the use of their loans to male members of the household, belying the empowering promise of microfinance. We propose a simple model of household bargaining to examine how providing women with credit affects production and decision-making power in the household. In particular, we allow for cooperative endeavours in production between the husband and the wife and the possibility of investing a loan in such endeavours. We show that the introduction of a microcredit programme is likely to have widely heterogeneous impacts, and can adversely affect the bargaining power of some women. We demonstrate that access to credit allows a woman to strengthen her bargaining position through an expansion of her autonomous activities (the causal mechanism hoped for) only in a limited number of cases: when she is able to invest her new capital profitably in an autonomous activity, and her husband has no alternative activity in which the same capital would generate comparable returns, or lacks the power to overrule her preferred investment choice. The two cases in which it is most likely that the availability of credit would enable the woman to strengthen her bargaining position within the household are (i) when capital can be invested in a cooperative activity to which both spouses contribute in an important way, and (ii) when a large share of the household budget is devoted to expenditures on household public goods

Microfinance and Gender Empowerment.

In the past 30 years, microfinance has carried many promises of social and economic transformation, with the shift towards targeting women being seen as a major strategic move through which the promise of social development could be most effectively delivered. However, ethnographic studies have shown that many women relinquish the use of their loans to male members of the household, belying the empowering promise of microfinance. We propose a simple model of household bargaining which examines how providing women with credit affects production and decision-making power in the household. Following Bergstrom (1996), we account for the roles of both divorce and non-cooperation in the household as relevant fall-back options in the bargaining strategy of each spouse. We show that the introduction of a microcredit programme is likely to have widely heterogeneous impacts, and can adversely affect the bargaining power of some women. We demonstrate that access to credit allows a woman to strengthen her bargaining position through an expansion of her autonomous activities (the causal mechanism hoped for) only in a limited number of cases: when she is able to invest her new capital profitably in an autonomous activity, and her husband has no alternative activity in which the same capital would generate comparable returns, or lacks the power to overrule her preferred investment choice. The two cases in which it is most likely that the availability of credit would enable the woman to strengthen her bargaining position within the household are (i) when capital can be invested in a cooperative activity to which both spouses contribute in an important way, and (ii) when a large share of the household budget is devoted to expenditures on household public goods.

A theory of child marriage

The practice of early marriage for women is prevalent in developing countries around the world today, and is believed to cause significant disruption in their accumulation of human capital. This paper develops an overlapping generations model of the marriage market to explain how the practice may be sustained in the absence of any intrinsic preference for young brides. We assume there is a desirable female attribute, relevant for the gains from marriage, that is only noisily observed before a marriage is contracted. We show that, in equilibrium, its prevalence declines with time spent on the marriage market and, thus, age can signal poorer quality and, consistent with the available evidence, require higher marriage payments. Model simulations for the case of Bangladesh show that (i) an intervention that raises the opportunity cost of marriage for adolescent girls can make it more and more attractive for future cohorts to postpone marriage such that its long-term impact on marriage and subsequent life choices may well exceed the impact on the first cohort which is exposed to it; (iii) a small-scale randomised control trial of the same intervention would signi.cantly under-estimate its efficacy by failing to capture equilibrium effects

Elite Capture Through Information Distortion: A Theoretical Essay

Common wisdom as well as sound analytical arguments suggest that stronger punishment of deviant behavior meted out by a principal typically prompts the agents to better conform with his objectives. Addressing the specific issue of donor-beneficiary relationships in the context of participatory development programs, we nevertheless show that greater tolerance on the part of donors may, under certain conditions, favor rather than hurt the interests of the poor. Also, greater uncertainty surrounding the donor's knowledge regarding the poor's preference may have the same paradoxical effect. Critical features of our framework are: (i) communities are heterogeneous and dominated by the local elite in dealing with external agencies, (ii) the elite choose the project proposed to the donor strategically, knowing that the latter has a certain amount of tolerance toward elite capture and an imperfect knowledge of the poor's priorities.community-driven development, aid effectiveness, elite capture, preference targeting, information distortion.

REPAYMENT INCENTIVES AND THE DISTRIBUTION OF GAINS FROM GROUP LENDING

Group loans with joint liability have been a distinguishing feature of many micronance programs. While such lending has benetted millions of borrowers, major lending insti- tutions have acknowledged their limited impact among the very poor and have recently favored individual contracts. This paper attempts to understand these empirical patterns using a model in which there is a single investment project and access to credit is limited by weak repayment incentives. We show that in the absence of large social sanctions, the poorest borrowers are o ered individual and not group contracts. When both types of contracts are feasible, the relative gains from group loans are shown to be decreasing in loan size. We compare the role of bank enforcement with social sanctions and nd that bank enforcement is more e ective in increasing outreach while social sanctions raise the welfare of infra-marginal borrowers. Finally, we explore the welfare e ects of group size and nd that those requiring small loans are better served by larger groups but group size e ects are, in general, ambiguous.microcredit, joint-liability, group lending, repayment incentives, social sanctions.

Using the Law to Change the Custom

We build a simple model of legal dualism in which a pro-poor legal reform, under certain conditions, causes the conflicting custom to go some way toward producing the change intended by the legislator. It then acts as an "outside anchor" that exerts a "magnet effect" on the custom. We illustrate this insight using examples on inheritance, marriage, and divorce issues in Sub-Saharan Africa and India. We also characterize the conditions under which a moderate pro-poor reform is more effective than a radical reform.Custom, Statutory Law, Inequality, Legal Reform

Fiscal decentralisation, local institutions and public goods provision: Evidence from Indonesia

Using data from the Indonesian Family Life Surveys, this paper studies the impact of fiscal decentralisation in Indonesia on local public spending across communities with different types of local institutions. Our results provide evidence of heterogeneity in access to public goods across communities in the period prior to fiscal decentralisation; with significantly greater spending on schools and health centres in communities which observe traditional adat laws (which promote an ethic of mutual cooperation), and less spending on roads, public transport, communications etc. in communities which have a democratic electoral system. Fiscal decentralisation led to an increase in the share of spending on physical infrastructure, as well as a convergence in spending across communities with different types of local institutions. We develop a theoretical model to argue that communities which enjoy a higher level of mutual cooperation would benefit less from investment in public goods which facilitate communication and exchange with outsiders - as these improve the outside options of community members and therefore makes it more difficult to sustain intra-community cooperation. Surprisingly, investment in communications and transport infrastructure in these communities were more restrained during the period of centralised fiscal control