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Empirical Analysis of Rosca Auctions in a South Indian Village

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  • Stefan Klonner

Abstract

A bidding rotating savings and credit association (Rosca) is modeled as a sequence of symmetricindependent-private-value auctions with price-proportional benefits to bidders. We estimate a structural econometric model which, by introducing an altruistic component into each bidder's utility function, allows for socially favorable deviations from the private information, nonaltruistic bidding equilibrium. We find that bidding is more altruistic in groups managed by experienced organizers and in Roscas whose current members have already run through more than one Rosca cycle of the current group, implying that effective leadership and enduring relationships help mitigate the social cost of strategic behavior. When a bidder has to meet an unforeseen expenditure and this information is public, bidders act more altruistically than when information is private and the Rosca funds are used for investment, indicating reciprocal risk sharing among Rosca participants.

Suggested Citation

  • Stefan Klonner, 2003. "Empirical Analysis of Rosca Auctions in a South Indian Village," Working Papers 854, Economic Growth Center, Yale University.
    • Handle: RePEc:egc:wpaper:854
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    References listed on IDEAS

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    More about this item

    Keywords

    Roscas; Auctions;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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