One of the more frequently utilized and popular informal sector financial institutions is the Rotating Savings and Credit Association (ROSCA). Despite the popularity of the institution, it has not been subjected to rigorous analysis within the field of economics. / ROSCAs allow members to pool savings, and get access to credit without collateral. ROSCAs encourage members to save, and they also increase interaction between members. The main issues that ROSCAs raise are: how is credit allocated, what are the welfare implications of the various allocation schemes, and how does the ROSCA address moral hazard and adverse selection issues? And finally, how does the ROSCA encourage savings even amongst low income groups? These questions are addressed in detail in the thesis. / ROSCA members are strictly better off compared to saving under autarky, and under some reasonable assumptions, even better off compared to saving through a bank. Random allocation of the pot is Pareto optimal when members are homogeneous, but the result does not hold for heterogeneous members. / Bidding ROSCAs are quite complicated since a 'jointly owned' asset is auctioned, and the auction is repeated over many periods. This auction requires explicit modeling of the auction environment, and the information structure of the individual members. We study different auctions, bidding strategies and information environments, and provide equilibria under specific conditions. The standard auction results are shown not to hold under certain conditions. / ROSCAs face moral hazard and adverse selection issues like any other financial institution. But, given that the institution is embedded in a community and social context, ROSCA members deal with the problem utilizing community networks, and the threat of ostracization. We study the selection and monitoring process, and then characterize an equilibrium under which a ROSCA can deter default successfully, and sustain itself over time. / Empirical literature on ROSCAs also points out that members view ROSCAs as 'commitment mechanisms' that facilitate saving. This observation sits uneasily with the neoclassical assumption of a utility maximizing agent. We study various possible explanations of the phenomena, and show how a ROSCA can act as such a mechanism.
| Identifer | oai:union.ndltd.org:LACETR/oai:collectionscanada.gc.ca:QMM.35674 |
| Date | January 1998 |
| Creators | Bari, Faisal. |
| Contributors | Whitmore, A. (advisor), Cairns, R. D. (advisor) |
| Publisher | McGill University |
| Source Sets | Library and Archives Canada ETDs Repository / Centre d'archives des thèses électroniques de Bibliothèque et Archives Canada |
| Language | English |
| Detected Language | English |
| Type | Electronic Thesis or Dissertation |
| Format | application/pdf |
| Coverage | Doctor of Philosophy (Faculty of Management.) |
| Rights | All items in eScholarship@McGill are protected by copyright with all rights reserved unless otherwise indicated. |
| Relation | alephsysno: 001657051, proquestno: NQ50108, Theses scanned by UMI/ProQuest. |
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