Consumption Smoothing, Returns to Investment and Community Agency

Abstract:
In this paper we ask whether households embedded within gift-giving networks in four Ghanaian villages allocate resources from windfall lottery gains in order to maximize network returns to investment and consumption. Lotteries are won either publicly, during a village festival, or privately after a random draw with researchers. Lotteries are held at the end 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 function of exogenous variation in the lottery winnings of one’s network. Results indicate that private lottery gains flow towards relatively food-insecure households for the purpose of food expenditure, especially during the hungry season (prior to harvest), through private lottery winnings. These transfers go primarily from rich to poor. Second, we show that private winnings also flow towards wealthier households for the purpose of increasing investments 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. These results indicate that the community considers joint consumption and investment decisions as a collective body by identifying households who benefit most from additional resources. Public lottery winnings do not flow optimally along the network and are instead “taxed” by less-well-off households. We interpret these results within a conceptual framework in which social insurance, investment and taxes complement one another in a dynamic system of resource redistribution within a community. We further hypothesize that communities can increase the efficiency of this system by rewarding trustworthy behavior in the community. This hypothesis if confirmed in analysis suggesting that most investments from the private lottery winnings flow towards relatively trustworthy households.