Social Norms and Individual Savings in the Context of Informal Insurance

This paper develops a theory of informal insurance in the presence of an intertemporal technology. It is shown that when an insurance agreement suffers from enforcement problems, constraints on individual savings behaviour can enable the group to sustain greater cooperation. This result provides a motivation for a variety of social norms observed in traditional societies which discourage ‘excessive’ accumulation of wealth by individuals. The paper also shows that social norms that discourage savings are more likely to benefit poorer communities and thus, paradoxically, cause them to fall further behind even as it serves a useful purpose. JEL Codes: D81, D91, O12, Z1 Corresponding Address for Author: Department of Economics, University of Namur, 8 Rempart de la Vierge, B-5000 Namur, Belgium. Email: [email protected]