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Hyperbolic Discounting and the Sustainability of Rotational Savings Arrangements

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  • Karna Basu

Abstract

People across the developing world join rotational savings and credit associations (roscas) to fund repeated purchases of nondivisible goods. When the scope for punishment is weak, there is a natural question about why agents not defect from roscas. This paper models roscas as commitment savings devices and derives conditions under which hyperbolic discounters will never defect, even in the absence of formal contracting, social punishment, and reputation. I show why, unlike with standard commitment devices, a hyperbolic discounter will not postpone entry into a rosca. Finally, this paper makes predictions about the relative survival of random and fixed roscas. (JEL D14, D91, O12)

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Microeconomics.

Volume (Year): 3 (2011)
Issue (Month): 4 (November)
Pages: 143-71

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Handle: RePEc:aea:aejmic:v:3:y:2011:i:4:p:143-71

Note: DOI: 10.1257/mic.3.4.143
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Citations

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Cited by:
  1. Banerjee, Abhijit & Duflo, Esther, 2010. "Giving Credit Where it is Due," CEPR Discussion Papers 7754, C.E.P.R. Discussion Papers.
  2. Esther Duflo, 2011. "Women’s Empowerment and Economic Development," NBER Working Papers 17702, National Bureau of Economic Research, Inc.
  3. Michal Bauer & Julie Chytilová & Jonathan Morduch, 2008. "Behavioral Foundations of Microcredit: Experimental and Survey Evidence From Rural India," Working Papers IES 2008/28, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Nov 2008.
  4. Manuela Angelucci & Dean Karlan & Jonathan Zinman, 2013. "Win Some Lose Some? Evidence from a Randomized Microcredit Program Placement Experiment by Compartamos Banco," Working Papers 1026, Economic Growth Center, Yale University.
  5. Bengtsson, Niklas & Pettersson, Jan, 2012. "The Outreach and Sustainability of Microfinance: Is There a Tradeoff?," Working Paper Series, Center for Labor Studies 2012:18, Uppsala University, Department of Economics.
  6. Basu, Karna, 2009. "A behavioral model of simultaneous borrowing and saving," MPRA Paper 20442, University Library of Munich, Germany.
  7. Manuela Angelucci, Dean Karlan, Jonathan Zinman, 2013. "Win Some Lose Some? Evidence from a Randomized Microcredit Program Placement Experiment by Compartamos Banco-Working Paper 330," Working Papers 330, Center for Global Development.
  8. Carlsson, Fredrik & Yang, Xiaojun, 2013. "Intertemporal Choice Shifts in Households: Do they occur and are they good?," Working Papers in Economics 569, University of Gothenburg, Department of Economics.
  9. Basu, Karna, 2014. "Commitment savings in informal banking markets," Journal of Development Economics, Elsevier, vol. 107(C), pages 97-111.
  10. Pascaline Dupas & Jonathan Robinson, 2013. "Why Don't the Poor Save More? Evidence from Health Savings Experiments," American Economic Review, American Economic Association, vol. 103(4), pages 1138-71, June.

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