Transcript Diapositiva 1

Social capital and market failures
Patricia López Rodríguez
&
Rodolfo de la Torre García
Paris, July 7th, 2011
Introduction
Empirical studies on the effects of social capital show that in developing
countries social capital is used primarily as a social security system for
managing risks and to absorb the impact on consumption and income
derived from economical crisis (Woolcock, 1999).
In Mexico people who don’t have access to formal markets use their
networks to acquire public and financing services, social insurance and
subsidies, among others (Londoño and Székely, 1997; Birdsall and Londoño,
1997b).
One of the characteristics of being poor is the lack of connections with
the formal economy. The literature suggests that social capital in poor
households is partly explained by the need of seeking institutional
solutions in a context of absent or imperfect markets (Morduch, 1995;
Townsend, 1995; Besley, 1995).
Social capital is used in imperfect markets because of incomplete
information problems, contract breach and high transport and transaction
costs.
Purpose of the paper
This paper studies the relationship between the social capital supply and
the variables that reflect alternatives to market failures.
Indicators used as market failures are:
Microfinance called “financial services”
Informal health services called “health services”
Informal alternative services of social security called “social security”
“Subsidies”
Relationship between SC and market failure
“financial services”
Reflects asymmetric information problems, contract breach, high transportation
and transaction costs and inequality problems. This limits the access to the poor
into the banking system because of the cost and risks involved in the allocation of
formal credit to the population that has no collateral or guaratee. Poor people get
loans from relatives and friends or savings in RoSCAs1. …People who participate in
these schemes grant resources to those who maintain a link or affinity (Mansell,
1995; Stiglitz and Weiss, 1981; Morduch, 1995; van Bastelaer, 2000).
“health services”
Reflects problems of asymmetric information and monopolies in its distribution
and supplies. When people don’t have access to clinics or hospitals use alternative
medicine like homemade medicine, tonic remedies, healer or midwife. …The
provision of them settles down links with the suppliers that generally are relatives
or known people (Auerbach and Krimgold, 2001; Barr, 1998; Evans, et. al., 1994).
1Informal
Rotating Savings and Credit Associations (RoSCAs)
Relationship between SC and market failure
“social security”
Is related to problems of uncertainty and risk that stem from two sources:
employment is a binary phenomenon and retirement is a discreet event, in
countries like Mexico. When people don’t have social benefits at work like medical
services, nursery school, mortgage and loans ask relatives and friends for their
supply, people who use these kind of services grant resources to others like
reciprocal consequence of others aid (Barr, 1998).
“Subsidies”
Markets provide goods and services for people which are prepared to pay a price
that covers their production costs. This isn’t always the case since markets may fail
to offer certain goods and services. Subsidies occurs when markets conditions to
achieve efficiency sacrifice equity conditions. People who receive subsidies
perceive the benefits of having the aid of public institutions and extend the trust
levels granting transferences towards others (Barr, 1998).
Definition of Social Capital
the relationship of “sympathy that a person has towards another that
causes that one offers social capital. This person generates benefits
advantages and preferential treatment to others.” (Robison and Siles, 1997)
It takes into account the positive aspect of the concept (Portes 1998).
It considers interdependence among individuals…one incorporates the
well-being of others in his own welfare (Hochman and Rodgers, 1969).
It distinguishes what social capital is (sympathy) from what it makes
(generates benefits, advantages or preferential treatment) and where it
resides (on the social relationship in which sympathy is expressed)
(Robinson, Schmid and Siles, 2002).
Social capital indicator
U
U
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 f ( If
U
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If
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i
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)
j
Kij
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i
U
Robison and Siles (1997), Andreoni (1989,1990), Echeverría
y Díaz (2002), Altonji, Hayashi y Kotlikoff (1996), Konow
(2004).
)
i
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j ,Tt ji
 Tn
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j
Tr
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ij
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K  
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1  K  Io Tr
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
K
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K
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
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Max U
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If
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Max U
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Social capital indicators
Bonding (contributions to the welfare of near people)
Bridging (opportunities and economic benefits for groups and communities as a
whole) Narayan (1999).
Type of
Social capital
(Putnam, 2000,
Woolcock, 2002).
Bonding
Bridging 1
Bridging 2
Bridging 3
Dimension of social
capital by the way it
is obtained
Indicator description
Networks
Aid to relatives and persons not member of
the household (help to relatives and friends).
Participation in
organizations
Contributions to charities, churches, Red
cross and voluntary organizations (grant
contributions to beneficial institutions).
Collective action
Contribution for local religious festivities
(communal contributions).
Collective action
Contributions for local public works
(contributions for local public services).
Proxies of Market failures
Variable
Description
Alternative
Financial services
People making use of informal credit services like deposits and
savings in ROSCAS, saving in local informal systems, and make loans
to individuals inside and outside the household.
Alternative Health
services
Lack of social
security
Receive
Subsidies
People using alternative care services and health care as medical
herbs, remedies, syrups, tonics and potions, healer, midwife.
People who don’t have social benefits from Mexican official
institutions, private or governmental sector in the kind of food aid
or pantry, childcare, training (courses, scholarships, etc.), housing
loans, cash loans, transport, discount or exemption in the payment
of services (electricity, telephone, etc.).
If at least one household member receive subsidies from
governmental Mexican programs named Procampo and
Opportunities.
Data and methodology
Data: Income and Expenditure Household Mexican Surveys (ENIGH) from
INEGI for years 1992, 1994, 1996, 1998, 2000, 2002 and 2004.
were are considering household heads because it’s assumed that home
transfers decisions are influenced by the head of household.
Estimations with Tobit models were made since information was
presented in censurated form.
Synthetic panels for seven years with population cohorts (1992, 1994,
1996, 1998, 2000, 2002 and 2004). The cohorts were built considering: sex,
birthday year and schooling (199 cohorts).
Semieslaticities were used because of seasonal changes of income.
Control variables were used such as age, education, economic
dependence, sex, zone, employment type, extended household, marital
status and services at home (telephone), migration conditions.
Results
Social capital was related in most of the models with market failures variables.
Sumary of results
Variable
Help relatives
and friends
Bonding
Alternative
health services
0.81
Alternative
financial services
0.66
Communal
contributions
Bridging 2
0.68
0.75
0.69
0.54
Contributions
for local public
services
Bridging 3
0.72
0.42
Receive
subsidies
Lack of social
security
Grant
contributions to
beneficial
institutions
Bridging 1
0.51
0.16
0.78
0.46
Other results
Social capital is higher between very young people when compared to
older people, after 40’s people has more social capital.
People with higher education, women, and people from rural areas
invest more in social capital
People who live in households with more economic dependents and who
live in extended households invest more in social capital.
Final remarks
In the presence of market failures people invest in social capital. These
market failures are associated with people using alternative health services,
alternative social security, participating in schemes of microfinance and
receiving subsidies.
If people don’t have access to formal services they invest more in their
networks through transfers, to provide themselves services like loans,
health care, childcare, employment, scholarship. It might be thought that
social capital is a useful mechanism to get people involved in social
programs.
This could help to identify groups with more or less social capital. This
social capital could be used to strengthen social participation in social
programs. An alternative would be to generate connections between the
formal participation of a small group of members of public programs and
the people who constitute the informal networks that arise every day in
search of these services.
Thank you…