Journal Article The Optimal Exploitation of an Unknown Reserve Get access Glenn C. Loury Glenn C. Loury Northwestern University Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 45, Issue 3, October 1978, Pages 621–636, https://doi.org/10.2307/2297264 Published: 01 October 1978 Article history Received: 01 November 1976 Accepted: 01 October 1977 Published: 01 October 1978

This paper examines the allocative performance of rotating savings and credit associations (roscas), a financial institution which is observed world-wide. We develop a model in which individuals save for an indivisible good and study roscas which distribute funds using random allocation and bidding. The allocations achieved by the two types of rosca are compared with that achieved by a credit market and with efficient allocations more generally. We find that neither type of rosca is efficient and that individuals are better off with a credit market than a bidding rosca. Nonetheless, a random rosca may sometimes yield a higher level of ex ante expected utility to prospective participants than would a credit market.