Basu, Karna (2009): A behavioral model of simultaneous borrowing and saving.
Download (234kB) | Preview
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, Innovation, Technological Change, and Growth > O1 - Economic Development
D - Microeconomics > D0 - General > D03 - Behavioral Microeconomics: Underlying Principles
O - Economic Development, Innovation, 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:||14. Mar 2015 03:01|
ASHRAF, N., GONS, N., KARLAN, D., and YIN, W. (2003), "A Review of Commitment Savings Products in Developing Countries", Asian Development Bank Economics and Research Department Working Paper #45.
ASHRAF, N., KARLAN, D., and YIN, W. (2006), "Tying Odysseus to the Mast: Evidence from a Commitment Savings Product in the Philippines", Quarterly Journal of Economics, 121 (2), 635-672.
BALAND, J., GUIRKINGER, C., and MALI, C. (2007), "Pretending to be poor: borrowing to escape forced solidarity in credit cooperatives in Cameroon", (mimeo).
BASU, K. (2007), "Hyperbolic Discounting and the Sustainability of Rotational Savings Arrangements", (mimeo).
BAUER, M., CHYTILOVA, J., and MORDUCH, J. (2008), "Behavioral Foundations of Microcredit: Experimental and Survey Evidence from Rural India", (mimeo).
BERTRAND, M., KARLAN, D., MULLAINATHAN, S., SHAFIR, E., and ZINMAN, J. (2008), "What’s Advertising Content Worth? Evidence from a Consumer Credit Marketing Field Experiment", (mimeo).
BERTRAND, M., MULLAINATHAN, S., and SHAFIR, E. (2004), "A Behavioral Economics View of Poverty", American Economic Review Papers and Proceedings, 419-423.
CONNING, J. and UDRY, C. (2007), "Rural Financial Markets", in Handbook of Agricultural Economics, Vol. 3, Agricultural Development by Evenson, R., Pingali P., and Schultz T. (eds.), North-Holland.
DEHEJIA, R., MONGTGOMERY, H., and MORDUCH, J. (2005), "Do Interest Rates Matter? Credit Demand in the Dhaka Slums", (mimeo).
HARRIS, C. and LAIBSON, D. (2001), "Dynamic Choices of Hyperbolic Consumers", Econometrica, 69 (4), 935-957.
KARLAN, D. (2007), "Social Connections and Group Banking", The Economic Journal, 117, F52-F84.
LAIBSON, D. (1997), "Golden Eggs and Hyperbolic Discounting", Quarterly Journal of Economics, 62, 443-479.
LAIBSON, D., REPETTO, A., and TOBACMAN, J. (2003), "A Debt Puzzle", in Knowledge, Information, and Expectations in Modern Economics: In Honor of Edmund S. Phelps by Aghion, P., Frydman, R., Stiglitz, J., and Woodford, M. (eds.), Princeton University Press.
MORDUCH, J. and ARMENDARIZ, B. (2005), The Economics of Microfinance, The MIT Press.
O’DONOGHUE, T., and RABIN, M. (1999), "Doing it Now or Later", American Economic Review, 89, 103-124.