Are gifts and loans between households voluntary

Abstract

We propose a simple test of unilateral versus bilateral link formation. When implementing this test, it is essential to correct for mis-reporting. We propose a new maximum likelihood estimator to deal with mis-reporting. We illustrate the methodology using detailed dyadic data on inter-household gifts and loans from the village of Nyakatoke in Tanzania. The testing strategy is based on the idea that, if lending and gift giving are voluntary, then both households should want to rely on each other for help, and the link formation process is bilateral. Answers to a question on who people would turn to for help are used as proxy for willingness to link. We find reasonably strong evidence to support unilateral link formation. Results suggest that if a household wishes to enter in a reciprocal relationship with someone who is sufficiently close socially and geographically, it can do so unilaterally.