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Basu, Karna. 2011. "Hyperbolic Discounting and the Sustainability of Rotational Savings Arrangements."
,
3(4): 143-71.
Show Article Details
DOI: 10.1257/mic.3.4.143
Abstract:People across the developing world join rotational savings and credit associations (roscas) to fund repeated purchases of nondivisible goods. When the scope for punishment is weak, there is a natural question about why agents not defect from roscas. This paper models roscas as commitment savings devices and derives conditions under which hyperbolic discounters will never defect, even in the absence of formal contracting, social punishment, and reputation. I show why, unlike with standard commitment devices, a hyperbolic discounter will not postpone entry into a rosca. Finally, this paper
makes predictions about the relative survival of random and fixed roscas. (JEL D14, D91, O12)
Authors:
Basu, Karna (Hunter College, CUNY)
JEL Classifications:
D14: Personal Finance
D91: Intertemporal Consumer Choice; Life Cycle Models and Saving
O12: Microeconomic Analyses of Economic Development
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