Fraying of the Ties that Bind: HIV/AIDS and Informal Contract Enforcement in KwaZulu Natal, South Africa

Linkow, Benjamin (2009): Fraying of the Ties that Bind: HIV/AIDS and Informal Contract Enforcement in KwaZulu Natal, South Africa.

Abstract

This paper provides a theoretical and empirical investigation of the effects of HIV/AIDS on communitylevel informal financial institutions such as rotating savings and credit associations. Our theoretical model illustrates that the mortality risk implied by the HIV/AIDS pandemic can put a significant strain on such institutions by shortening time horizons and weakening expectations of reciprocity on the part of participants. Mortality thus implies a community-wide externality, as even households that are not directly impacted by the disease are nonetheless adversely affected by living in high prevalence communities. Using panel data from the high-prevalence area of KwaZulu Natal, South Africa, we investigate the effects of community-level mortality on the rate of participation in community level financial and other types of groups. We find that mortality at the community level substantially reduces the prevalence of group membership, and that the differential impacts of mortality on different types of groups are consistent with the predictions of our theoretical model.

• Item Type: MPRA Paper
• Language: English
• Keywords: HIV/AIDS; South Africa; Institutions; ROSCAs
• Subjects: D - Microeconomics > D7 - Analysis of Collective Decision-Making > D71 - Social Choice ; Clubs ; Committees ; Associations; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O10 - General; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O17 - Formal and Informal Sectors ; Shadow Economy ; Institutional Arrangements; D - Microeconomics > D0 - General > D02 - Institutions: Design, Formation, Operations, and Impact; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O12 - Microeconomic Analyses of Economic Development

References

Ambec,Stefan, and Nicholas Treich (2007) “Roscas as Financial Agreements to Cope with Self Control Problems” Journal of Development Economics 82 (1) pp. 120-137

Anderson, Siwan, and Jean-Marie Baland (2002) “The Economics of ROSCAs and Intrahousehold Resource Allocation” Quarterly Journal of Economics 117 (3) pp. 963- 965

Anderson, Siwan, Jean-Marie Baland, and Karl Ove Moene (2009) “Enforcement in Informal Savings Groups” Journal of Development Economics 90 (1) pp. 14-23

Armendiariz, Beatriz, and Jonathan Morduch (2007) The Economics of Microfinance The MIT Press: Cambridge, MA Besley, Timothy, Stephen Coate and Glen Loury (1993) American Economic Review 83 (4) pp. 792-810

Bowles, Samuel, and Herbert Gintis (2002) “Social Capital and Community Governance” The Economic Journal 112 pp. F419-F436 Brooks, Nancy (2001) “The Effects of Community Characteristics on Community Social Behavior” Journal of Economic Behavior & Organization 44pp. 249– 267

Case, Anne, Annu Garib, Alicia Mendez, and Analia Olgiati (2008) “Paying the Piper: The High Cost of Funerals in South Africa” NBER Working Paper 14456

Chamberlain, Gary (1980) “Analysis of covariance with qualitative data” Review of Economic Studies 47(1) pp. 225–238

Collins, Daryl, Jonathan Morduch, Stuart Rutherford and Orlanda Ruthven (2009) Portfolios of the Poor: How the World’s Poor Live on $2 a Day Princeton University Press: Princeton, NJ

David, Antonio (2007) “HIV/AIDS and Social Capital in a Cross-Section of Countries” World Bank Policy Research Working Paper 4263

Dorrington, Rob, Debbie Bradshaw and Debbie Budlender (2002) HIV/AIDS Profile in the Provinces of South Africa: Indicators for 2002 Centre for Actuarial Research, Medical Research Council and the Actuarial Society of South Africa

Fehr, Ernst, Gachter, Simon, (2000) “Cooperation and punishment in public goods experiments” American Economic Review 90 (4), 980–994.

Gugerty, Mary Kay (2007) “You Can’t Save Alone: Commitment in Rotating Savings and Credit Associations in Kenya” Economic Development and Cultural Change 51 (2) pp. 251-282

Jayne, Thomas, Antony Chapoto, Elizabeth Byron, Mukelabai Ndiyoi, Petan Hamazakaza, Suneetha Kadiyala, and Stuart Gillespie (2006) “Community-level Impacts of AIDS-Related Mortality: Panel Survey Evidence from Zambia” Review of Agricultural Economics 28 (3) pp. 440-457

Maher, M. (1995) “Transaction Cost Economics and Contractual Relations” Cambridge Journal of Economics 21(2) pp. 147-170

Miguel, Edward, and Mary Kay Gugerty (2005) “Ethnic diversity, social sanctions, and public goods in Kenya” Journal of Public Economics 89 (2005) 2325–2368

Roth, Jimmy (1999) “Informal Micro-Finance Schemes: The Case of Funeral Insurance in South Africa” Social Finance Unit Working Paper 22, International Labor Office, International Labor Organization

Van den Brink, Rogier, and Jean-Paul Chavas (1997) “The Microeconomics of an Indigenous African Institution: The Rotating Savings and Credit Association” Economic Development and Cultural Change 45 (4) pp. 745-72

Verhoef, Greitje (2001) “Informal Financial Institutions for Survival: African Women and Stokvels in Urban South Africa, 1930-1998” Enterprise and Society 2 (2) pp. 259- 296

Wooldridge, Jeffrey (2001) Economic Analysis of Cross-Sectional and Panel Data The MIT Press: Cambridge, MA