Kinship Networks Enhanced by a Formal Financial Intervention: Costly State Verification and the Thai Village Fund

38 Pages Posted: 5 Sep 2020 Last revised: 8 Jan 2022

See all articles by Hong Ru

Hong Ru

Nanyang Business School, Nanyang Technological University

Robert M. Townsend

Massachusetts Institute of Technology (MIT)

Date Written: January 6, 2021

Abstract

Transfers (gifts) among poor households play a crucial role in funding investment, a role amplified by a quasi-formal village fund program in 2001, especially for those with preexisting informal kinship ties. Moreover, we document financial regime shifts using maximum-likelihood estimation. Two exogenously incomplete regimes (saving only and lending/borrowing) dominated for the relatively poor before the village fund, but costly state verification, a less incomplete financial regime, dominates in the subsample of poor households connected via kinship to the village fund. The structurally-estimated verification cost of these households is also significantly lower than those without kinship after 2001, relative to before.

Keywords: Informal Network, Village Fund, Regime Shift, Costly State Verification

JEL Classification: D10, E44, G10, L14, O10

Suggested Citation

Ru, Hong and Townsend, Robert M., Kinship Networks Enhanced by a Formal Financial Intervention: Costly State Verification and the Thai Village Fund (January 6, 2021). Nanyang Business School Research Paper No. 20-17, Available at SSRN: https://ssrn.com/abstract=3662808 or http://dx.doi.org/10.2139/ssrn.3662808

Hong Ru (Contact Author)

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore
(+65) 67904661 (Phone)

HOME PAGE: http://https://hongru.mit.edu/

Robert M. Townsend

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

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