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.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Information about Free Papers

You should expect a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w18742

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

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

Contact Us