Investment Decisions of Small Entrepreneurs in a Context of Strong Sharing Norms

Abstract

Many communities in Sub-Saharan Africa are characterized by strong sharing obligations.
Based on a theoretical model applied to  a sample of tailors in Burkina Faso's capital Ouagadougou, we show that although complying with such obligations can imply insurance against household and business-related shocks, it requires forgoing profitable investments and hence long term growth.

Our results support the idea that there are two behavioral patterns: complying with sharing norms and staying small or stepping out of the solidarity network, investing and becoming big. Whether an entrepreneur  falls into one or the other category depends in particular on the intensity of the redistributive pressure and on the willingness to take risk.

These results suggest that the provision of formal insurance may contribute to long term growth by softening sharing obligations.

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For more information please contact Annet van Geen or Roy Huijsmans