Can fixed regular deposits overcome savings constraints?

Research output: Contribution to journalArticlepeer-review

Abstract

Empirical evidence from developing countries suggests that there is a high demand for informal savings mechanisms even though these often feature negative returns - such as deposit collectors, ROSCAs, microloans, and informal borrowing. Why do people not just save at home, instead of relying on such costly devices? In a savings model with hyperbolic discounting and uncertainty, I show why a commitment to fixed regular savings deposits can help individuals to achieve the welfare-maximising level of savings, when they would not be able to do so on their own. Such regular-instalment commitment products further increase welfare by smoothing savings contributions. The setting is enriched by endogenising take-up, and giving individuals the ability to choose their own commitment stakes. The results point to the possibility that the observed demand for costly informal savings devices may simply represent a demand for commitment savings products with fixed periodic contributions, as they are commonly offered by banks in rich countries.
Original languageEnglish
Pages (from-to)909-924
Number of pages16
JournalRevue Economique
Volume68
Issue number5
DOIs
Publication statusPublished - 20 Sep 2017

Fingerprint

Dive into the research topics of 'Can fixed regular deposits overcome savings constraints?'. Together they form a unique fingerprint.

Cite this