Open Access Open Access  Restricted Access Subscription or Fee Access

Measuring Risk Attitudes and Time Preference in Rotating Saving Credit Associations

Indu Choudhary

Abstract


A rotating saving credit association, popularly known as ‘Rosca’, is a financial mechanism functioning over a fixed period of time. It involves formation of a group of people contributing fixed amounts of money to a pre-determined pool every period. Each participant either through draw of lots or bidding is entitled to the rosca pot in a given round. The rosca cycle ends when each person in the group has received the pot. The uniqueness of rosca as a financial instrument lies in its dual role of a saving and a credit instrument. This paper analyzes the role of risk attitudes and time preferences in discount bidding roscas. The data for the study comes from roscas organized in two urbanized villages of the national capital territory of Delhi. Using a risk-time preference experiment on rosca participants, the paper employs non-linear least squares estimation to elicit risk and time preference parameters for participants of discount bidding roscas in the sample.

Keywords


Roscas, risk, time preference, experiments, non-linear

Full Text:

PDF

References


Besley T, Coate S, Loury G. The economics of rotating savings and credit associations. The American Economic Review. 1993 Sep 1: 792–810p.

Calomiris CW, Rajaraman I. The role of ROSCAs: lumpy durables or event insurance? Journal of Development Economics. 1998 Jun 30; 56(1): 207–16p.

Aliber M. Rotating savings and credit associations and the pursuit of self-discipline: A case study in South Africa. African Review of Money Finance and Banking. 2001 Jan 1: 51–73p.

Gugerty MK. You can’t save alone: Commitment in rotating savings and credit associations in Kenya. Economic Development and Cultural Change. 2007 Jan; 55(2): 251–82p.

Peterlechner L. Roscas in Uganda-Beyond Economic Rationality?-. African Review of Money Finance and Banking. 2009 Jan 1: 109–40p.

Dagnelie O, Lemay‐Boucher P. ROSCA participation in Benin: a commitment issue. Oxford Bulletin of Economics and Statistics. 2012 Apr 1; 74(2): 235–52p.

Klonner S. Rotating savings and credit associations when participants are risk averse. International Economic Review. 2003 Aug 1; 44(3): 979–1005p.

Tanaka T, Nguyen Q. Rosca as a saving commitment device for sophisticated hyperbolic discounters: field experiment from Vietnam. In Working Paper. 2009.

Binswanger HP. Attitudes toward risk: Experimental measurement in rural India. American Journal of Agricultural Economics. 1980 Aug 1; 62(3): 395–407p.

Gneezy U, Potters J. An experiment on risk taking and evaluation periods. The Quarterly Journal of Economics. 1997 May 1; 112(2): 631–45p.

Eckel CC, Grossman PJ. Sex differences and statistical stereotyping in attitudes toward financial risk. Evolution and Human Behavior. 2002 Jul 31; 23(4): 281–95p.

Holt CA, Laury SK. Risk aversion and incentive effects. American Economic Review. 2002 Dec 1; 92(5): 1644–55p.

Tanaka T, Nguyen Q. Committing the Uncommitted: Rosca as a Saving Commitment Device for Sophisticated Hyperbolic Discounters. Working Paper. Arizona University.

De Brauw A, Eozenou P. Measuring risk attitudes among Mozambican farmers. Journal of Development Economics. 2014 Nov 30; 111: 61–74p.

Tversky A, Kahneman D. Advances in prospect theory: Cumulative representation of uncertainty. Journal of Risk and Uncertainty. 1992 Oct 1; 5(4): 297–323p.

Dohmen T, Falk A, Huffman D, Sunde U, Schupp J, Wagner GG. Individual risk attitudes: Measurement, determinants, and behavioral consequences. Journal of the European Economic Association. 2011 Jun 1; 9(3): 522–50p.

Weber EU, Blais AR, Betz NE. A domain‐specific risk‐attitude scale: Measuring risk perceptions and risk behaviors. Journal of Behavioral Decision Making. 2002 Oct 1; 15(4): 263–90p.

Moore MJ, Viscusi WK. Models for estimating discount rates for long-term health risks using labor market data. Journal of Risk and Uncertainty. 1990 Dec 1; 3(4): 381–401p.

Enemark U, Lyttkens CH, Troeng T, Weibull H, Ranstam J. Implicit discount rates of vascular surgeons in the management of abdominal aortic aneurysms. Medical decision making. 1998 Apr 1; 18(2): 168–77p.

Warner JT, Pleeter S. The personal discount rate: Evidence from military downsizing programs. American Economic Review. 2001 Mar 1: 33–53p.

Hausman JA. Individual discount rates and the purchase and utilization of energy-using durables. The Bell Journal of Economics. 1979 Apr 1: 33–54p.

Prestemon JP, Wear DN. Linking harvest choices to timber supply. Forest Science. 2000 Aug 1; 46(3): 377–89p.

Benhabib J, Bisin A, Schotter A. Present-bias, quasi-hyperbolic discounting, and fixed costs. Games and Economic Behavior. 2010 Jul 31; 69(2): 205–23p.

Kirby KN, Godoy R, Reyes-Garcı́a V, Byron E, Apaza L, Leonard W, Perez E, Vadez V, Wilkie D. Correlates of delay-discount rates: Evidence from Tsimane' Amerindians of the Bolivian rain forest. Journal of Economic Psychology. 2002 Jun 30; 23(3): 291–316p.

Harrison GW, Lau MI, Williams MB. Estimating individual discount rates in Denmark: A field experiment. The American Economic Review. 2002 Dec 1; 92(5): 1606–17p.


Refbacks

  • There are currently no refbacks.