Basu, Karna (2009): A behavioral model of simultaneous borrowing and saving.
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Abstract
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 |
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Original Title: | A behavioral model of simultaneous borrowing and saving |
Language: | English |
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 |
Item ID: | 20442 |
Depositing User: | Karna Basu |
Date Deposited: | 05 Feb 2010 06:18 |
Last Modified: | 26 Sep 2019 14:15 |
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URI: | https://mpra.ub.uni-muenchen.de/id/eprint/20442 |