Can Fixed Regular Deposits Overcome Savings Constraints?

Anett John

Revue économique, 2017, vol. 68, issue 5, 909-924

Abstract: Empirical evidence from developing countries suggests that there is a high demand for informal savings mechanisms even though these often feature negative returns?such as deposit collectors, ROSCAs, microloans, and informal borrowing. Why do people not just save at home, instead of relying on such costly devices? In a savings model with hyperbolic discounting and uncertainty, I show why a commitment to fixed regular savings deposits can help individuals to achieve the welfare-maximising level of savings, when they would not be able to do so on their own. Such regular-instalment commitment products further increase welfare by smoothing savings contributions. The setting is enriched by endogenising take-up, and giving individuals the ability to choose their own commitment stakes. The results point to the possibility that the observed demand for costly informal savings devices may simply represent a demand for commitment savings products with fixed periodic contributions, as they are commonly offered by banks in rich countries.

Date: 2017
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.cairn.info/load_pdf.php?ID_ARTICLE=RECO_PR3_0100 (application/pdf)
http://www.cairn.info/revue-economique-2017-5-page-909.htm (text/html)
free

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cai:recosp:reco_pr3_0100

Access Statistics for this article

More articles in Revue économique from Presses de Sciences-Po
Bibliographic data for series maintained by Jean-Baptiste de Vathaire ().