The fluctuations in incomes inherent in rural communities can be attenuated by reciprocal assistance. A model of reciprocal assistance based upon rational action and voluntary participation is presented. Individuals provide assistance only if the costs of so doing are outweighed by the benefits from expected future reciprocation. A distinction is made between general reciprocity, where the counter obligation is expected but not certain, and balanced reciprocity, where there is a firm counter obligation. This firm counter obligation is reflected by including a loan or quasi-credit element in any assistance. It is shown how this can increase the assistance given and it may explain the widespread use of quasi-credit in rural communities. Moreover, it is shown that for a range of parameter values consistent with evidence from three villages in southern India, a simple scheme of gift-giving and quasi-credit can do almost as well as theoretically better but more complicated schemes.
- implicit contract