Consumer Surplus with Incomplete Markets: Applications to Savings and Microfinance

John Ashton Loeser

No 10481, Policy Research Working Paper Series from The World Bank

Abstract: The household welfare gains from financial inclusion are empirically elusive. This paper establishes that household welfare gains from a financial technology are equal to the area under dynamically compensated demand in a household model with incomplete financial markets, and general technology, preferences, and choice sets. This paper then estimates compensated demand for financial technologies leveraging three randomized control trials that introduce experimental variation in interest rates. Welfare gains per dollar lent or saved are small as compensated demand elasticities are large, but still correspond to large aggregate welfare gains from financial inclusion.

Date: 2023-06-12
New Economics Papers: this item is included in nep-dcm, nep-fdg and nep-pay
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