Profits To Bonus Employees

According to a study by Christopher Udry, this form of informal insurance has both advantages and disadvantages. Over a year in rural Nigeria, Udry asked people to record every gift or informal loan they gave to each other and the conditions under which those loans were reciprocated.[214]Every month, he also asked if anything unfortunate had happened to the villagers. The observed result is that at any given time, a normal family is in debt or loans to 2.5 other families. And loan repayment conditions are tailored to the specific circumstances of the borrower and the lender. When the borrower has problems, he can repay less (usually less than the original value of the loan) but if the lender has problems, the borrower usually repays more than he paid. I owe. This dense social network of reciprocal borrowing and lending relationships is extremely effective in minimizing risk for each individual. However, there are still many limitations in this informal dependence relationship. Families still suffer from reduced income when things happen, even though the total income of everyone in the network combined remains unchanged.