Poverty and Self-Control
AbstractThe absence of self-control is often viewed as an important correlate of persistent poverty. Using a standard intertemporal allocation problem with credit constraints faced by an individual with quasi- hyperbolic preferences, we argue that poverty damages the ability to exercise self-control. Our theory invokes George Ainslie’s notion of “personal rules,” interpreted as subgame-perfect equilibria of an intrapersonal game played by a time-inconsistent decision maker. Our main result pertains to situations in which the individual is neither so patient that accumulation is possible from every asset level, nor so impatient that decumulation is unavoidable from every asset level. Such cases always possess a threshold level of assets above which personal rules support unbounded accumulation, and a second threshold below which there is a “poverty trap”: no personal rule permits the individual to avoid depleting all liquid wealth. In short, poverty perpetuates itself by undermining the ability to exercise self-control. Thus even temporary policies designed to help the poor accumulate assets may be highly effective. We also explore the implications for saving with easier access to credit, the demand for commitment devices, the design of accounts to promote saving, and the variation of the marginal propensity to consume across classes of resource claims.
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Date of creation: Jan 2013
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Find related papers by JEL classification:
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
- I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
- O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-02-03 (All new papers)
- NEP-HPE-2013-02-03 (History & Philosophy of Economics)
- NEP-LTV-2013-02-03 (Unemployment, Inequality & Poverty)
- NEP-MFD-2013-02-03 (Microfinance)
- NEP-MIC-2013-02-03 (Microeconomics)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Poverty exacerbates self-control issues
by Economic Logician in Economic Logic on 2013-02-12 15:25:00
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