Essays on rotating savings and credit associations

Recent theoretical research on rotating savings and credit associations (Roscas) suggests that identical individuals prefer a random to a bidding Rosca when participants save for a lumpy durable or an investment good. Here, in contrast, under the assumption that Rosca funds are used for consumption, that participants are risk averse, and that their incomes are stochastic, independent and privately observed, it is shown that a random Rosca is not advantageous, while a bidding Rosca is so if temporal risk aversion is less pronounced than static risk aversion. The payoff scheme of a bidding Rosca helps to mitigate the problem of information asymmetries. In bidding Roscas, the intertemporal pattern of observed bids depends on impatience and risk aversion in a non-trivial way.In an empirical study, data from 23 rotating savings and credit associations (Roscas) in an agricultural south-Indian village are used for an analysis of Rosca auctions. We develop a simple SIPV Rosca-auction model. We show that, in contrast to standard SIPV English auctions, bidders overbid relative to their maximum willingness to pay in an oral ascending bid Rosca auction and that less aggressive bidding is socially beneficial. Estimating the structural model by maximum likelihood, we find that (i) aggregate features immanent in agricultural production are reflected by Rosca auction outcomes, (ii) bidding in Rosca groups of experienced organisers is less aggressive than in groups of newcomer-organisers, implying that Rosca organisers play a role in how socially beneficial a Rosca is, (iii) bidding in Rosca groups which have run more than one Rosca before tends to be less aggressive, indicating social gains from enduring relationships, (iv) when Rosca funds are used for productive purposes, bidders usually keep their information private, (v) when a bidder has an ?emergency? and this information is revealed, bidding is less aggressive indicating co-operation among bidders based on reciprocity.