Poverty and Self-Control
The 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.
|Date of creation:||Jan 2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dean Karlan & Nava Ashaf & Wesley Yin, 2004.
"Tying odysseus to the mast: Evidence from a commitment savings product in the philippines,"
Natural Field Experiments
00206, The Field Experiments Website.
- Nava Ashraf & Dean Karlan & Wesley Yin, 2006. "Tying Odysseus to the Mast: Evidence from a Commitment Savings Product in the Philippines," The Quarterly Journal of Economics, MIT Press, vol. 121(2), pages 635-672, May.
- Abhijit Banerjee & Sendhil Mullainathan, 2010.
"The Shape of Temptation: Implications for the Economic Lives of the Poor,"
- Abhijit Banerjee & Sendhil Mullainathan, 2010. "The Shape of Temptation: Implications for the Economic Lives of the Poor," NBER Working Papers 15973, National Bureau of Economic Research, Inc.
- Banerjee, Abhijit & Mullainathan, Sendhil, 2010. "The Shape of Temptation: Implications for the Economic Lives of the Poor," CEPR Discussion Papers 7828, C.E.P.R. Discussion Papers.
- Ambec, Stefan & Treich, Nicolas, 2007. "Roscas as financial agreements to cope with self-control problems," Journal of Development Economics, Elsevier, vol. 82(1), pages 120-137, January.
- Bacchetta, Philippe & Gerlach, Stefan, 1997.
"Consumption and Credit Constraints: International evidence,"
CEPR Discussion Papers
1727, C.E.P.R. Discussion Papers.
- Bacchetta, Philippe & Gerlach, Stefan, 1997. "Consumption and credit constraints: International evidence," Journal of Monetary Economics, Elsevier, vol. 40(2), pages 207-238, October.
- Philippe BACCHETTA & Stefan GERLACH, 1997. "Consumption and Credit Constraints : International Evidence," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9707, Université de Lausanne, Faculté des HEC, DEEP.
- Abhijit Banerjee & Andrew F. Newman, 1989.
"Risk-Bearing and the Theory of Income Distribution,"
877, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Banerjee, Abhijit V & Newman, Andrew F, 1991. "Risk-Bearing and the Theory of Income Distribution," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 211-35, April.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:18742. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.