The stylised representation of ROSCAs in recent theoretical work as a
device driven by impatience for lumpy consumer durables misses the imp
ortant insurance role of this pervasive informal financial institution
in the developing world. That insurance role explains why ROSCAs with
concurrent bidding are the dominant means of determining the sequence
and pricing of allocations. In ROSCAs so structured, the recipient an
d the implied interest rate for each period's allotment are determined
by competitive bids at the time of distribution. We use an example of
an actual bidding ROSCA to demonstrate the extent of unpredictable ne
eds for funds, as reflected in the volatility of interest rates implic
it in winning bids. (C) 1998 Elsevier Science B.V. All rights reserved
.