Commitment savings in informal banking markets
Karna Basu ()
Journal of Development Economics, 2014, vol. 107, issue C, 97-111
Abstract:
I study the provision of commitment savings by informal banks to sophisticated hyperbolic discounters. Since a consumer is subject to temptation in the period that he signs a contract, banks might exploit his desire for instant gratification even as they help him to commit for the future. Without banking, savings decisions and welfare are not monotonic in the degree of time-inconsistency. Consequently, commitment savings will lower welfare for moderately time-inconsistent agents. If loan contracts are enforceable, pure commitment savings will disappear. This will further lower welfare if the lender is a profit-maximizing bank, but raise welfare if the lender is a welfare-maximizing NGO. Finally, I consider the coexistence of a bank and NGO. There will be zero takeup of NGO-provided commitment savings if there is competition from a moneylender. But the NGO's offer will raise the agent's reservation utility, thus reducing the surplus that can be extracted by the moneylender.
Keywords: Hyperbolic discounting; Commitment savings; Informal banking (search for similar items in EconPapers)
JEL-codes: D03 D91 O12 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)
Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304387813001685
Full text for ScienceDirect subscribers only
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:eee:deveco:v:107:y:2014:i:c:p:97-111
DOI: 10.1016/j.jdeveco.2013.11.006
Access Statistics for this article
Journal of Development Economics is currently edited by M. R. Rosenzweig
More articles in Journal of Development Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().