Basu, Karna (2009): A behavioral model of simultaneous borrowing and saving.
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Why do individuals borrow and save money at the same time? I present a model in which sophisticated time-inconsistent agents, when faced with a future investment opportunity, rationally choose to save their wealth and then borrow to fund the investment. The combination of savings and a loan generates incentives for future selves to invest optimally by punishing over-consumption. This paper contains two main results. First, I show that agents who simultaneously save and borrow can have higher lifetime welfare than those who don’t. Second, I show that agents who have access to a non-secure savings technology can be better off than those who only have access to secure savings.
|Item Type:||MPRA Paper|
|Original Title:||A behavioral model of simultaneous borrowing and saving|
|Keywords:||saving, borrowing, microfinance, hyperbolic discounting|
|Subjects:||O - Economic Development, Technological Change, and Growth > O1 - Economic Development
D - Microeconomics > D0 - General > D03 - Behavioral Economics; Underlying Principles
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O12 - Microeconomic Analyses of Economic Development
|Depositing User:||Karna Basu|
|Date Deposited:||05. Feb 2010 06:18|
|Last Modified:||12. Feb 2013 19:21|
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