Consumption Smoothing, Returns to I nvestment and Community Agency
Abstract:
In this paper we ask whether households embedded within gif
t-giving networks in four Ghanaian villages allocate resources from windfal
l lottery gains in order to maximize network returns to investment and cons
umption. Lotteries are won either publicly, during a village festival, or p
rivately after a random draw with researchers. Lotteries are held at the en
d of 4 out of 5 survey collection rounds that take place within a year. We
examine how a given consumption or investment decision changes when as a fu
nction of exogenous variation in the lottery winnings of one’s network. Res
ults indicate that private lottery gains flow towards relatively food-insec
ure households for the purpose of food expenditure, especially during the h
ungry season (prior to harvest), through private lottery winnings. These tr
ansfers go primarily from rich to poor. Second, we show that private winnin
gs also flow towards wealthier households for the purpose of increasing inv
estments in human capital. Transfers flow primarily from poor households to
rich. Additional checks show that households self-reporting illness shocks
increase medical expenditures when network links win private lotteries. Th
ese results indicate that the community considers joint consumption and inv
estment decisions as a collective body by identifying households who benefi
t most from additional resources. Public lottery winnings do not flow optim
ally along the network and are instead “taxed” by less-well-off households.
We interpret these results within a conceptual framework in which social i
nsurance, investment and taxes complement one another in a dynamic system o
f resource redistribution within a community. We further hypothesize that c
ommunities can increase the efficiency of this system by rewarding trustwor
thy behavior in the community. This hypothesis if confirmed in analysis sug
gesting that most investments from the private lottery winnings flow toward
s relatively trustworthy households.