NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Poverty and Self-Control

B. Douglas Bernheim, Debraj Ray, Sevin Yeltekin

NBER Working Paper No. 18742
Issued in January 2013
NBER Program(s):   DEV   PE

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.

download in pdf format
   (634 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w18742

Users who downloaded this paper also downloaded these:
Banerjee and Mullainathan w15973 The Shape of Temptation: Implications for the Economic Lives of the Poor
Dimmock, Kouwenberg, Mitchell, and Peijnenburg w18743 Ambiguity Aversion and Household Portfolio Choice: Empirical Evidence
Meyer and Sullivan w18718 Winning the War: Poverty from the Great Society to the Great Recession
McFadden w18687 The New Science of Pleasure
Augsburg, De Haas, Harmgart, and Meghir w18538 The Impacts of Microcredit: Evidence from Bosnia and Herzegovina
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us