hero working papers

Ethnicity and Reciprocity: A model of Credit Transactions in Ghana

Number: 193
Year: 2001
Author(s): Eliana La Ferrara (Bocconi University and IGIER)

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 kinship 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). These two effects are incorporated in a theoretical framework with overlapping generations and tested using household-level data from Ghana.