Does Africa Need a Rotten Kin Theorem? Experimental Evidence from Village Economies

Abstract

This paper measures the economic impacts of social pressures to share income with kin and neighbors in rural Kenyan villages. We conduct a lab experiment in which we randomly vary the observability of investment returns to test whether subjects reduce their income in order to keep it hidden. We find that women adopt an investment strategy that conceals the size of their initial endowment in the experiment, though that strategy reduces their expected earnings. This effect is largest among women with relatives attending the experiment. Parameter estimates suggest that women anticipate that observable income will be \taxed" at a rate above four percent; this effective tax rate nearly doubles when kin can observe income directly. Though this paper provides experimental evidence from a single African country - Kenya - observational studies suggest that similar kin pressures may be prevalent in many rural areas throughout Sub-Saharan Africa.