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Rotating savings and credit associations: the choice between random and bidding allocation of funds

1999; Elsevier BV; Volume: 60; Issue: 1 Linguagem: Inglês

10.1016/s0304-3878(99)00039-5

1872-6089

Jens Kovsted, Peter Lyk-Jensen,

Financial Literacy, Pension, Retirement Analysis

The performance and efficiency of random and bidding rotating savings and credit associations (roscas) are compared within a game theoretic model. Information about individuals return from investing the rosca pool is assumed to be asymmetric and imperfect, and rosca members are allowed to use funds raised outside the rosca to supplement the funds raised in the rosca. The conclusion is that although both types of roscas can improve individual welfare, the bidding rosca is preferred to the random rosca except when credit from other sources is costly and types of rosca members are not widely dispersed.