Poverty and Self-Control

B. Douglas Bernheim, Debraj Ray, Şevin Yeltekin

    Research output: Contribution to journalArticle

    Abstract

    We argue that poverty can perpetuate itself by undermining the capacity for self-control. In line with a distinguished psychological literature, we consider modes of self-control that involve the self-imposed use of contingent punishments and rewards. We study settings in which consumers with quasi-hyperbolic preferences confront an otherwise standard intertemporal allocation problem with credit constraints. Our main result demonstrates that low initial assets can limit self-control, trapping people in poverty, while individuals with high initial assets can accumulate indefinitely. Thus, even temporary policies that initiate accumulation among the poor may be effective. We examine implications concerning the effect of access to credit on saving, the demand for commitment devices, the design of financial accounts to promote accumulation, and the variation of the marginal propensity to consume across income from different sources. We also explore the nature of optimal self-control, demonstrating that it has a simple and behaviorally plausible structure that is immune to self-renegotiation.

    Original languageEnglish (US)
    Pages (from-to)1877-1911
    Number of pages35
    JournalEconometrica
    Volume83
    Issue number5
    DOIs
    StatePublished - Sep 1 2015

    Fingerprint

    Self-control
    Poverty
    Assets
    Marginal propensity to consume
    Credit constraints
    Renegotiation
    Psychological
    Allocation problem
    Punishment
    Access to credit
    Reward
    Income

    Keywords

    • Poverty
    • Self-control
    • Time inconsistency

    ASJC Scopus subject areas

    • Economics and Econometrics

    Cite this

    Bernheim, B. D., Ray, D., & Yeltekin, Ş. (2015). Poverty and Self-Control. Econometrica, 83(5), 1877-1911. https://doi.org/10.3982/ECTA11374

    Poverty and Self-Control. / Bernheim, B. Douglas; Ray, Debraj; Yeltekin, Şevin.

    In: Econometrica, Vol. 83, No. 5, 01.09.2015, p. 1877-1911.

    Research output: Contribution to journalArticle

    Bernheim, BD, Ray, D & Yeltekin, Ş 2015, 'Poverty and Self-Control', Econometrica, vol. 83, no. 5, pp. 1877-1911. https://doi.org/10.3982/ECTA11374
    Bernheim BD, Ray D, Yeltekin Ş. Poverty and Self-Control. Econometrica. 2015 Sep 1;83(5):1877-1911. https://doi.org/10.3982/ECTA11374
    Bernheim, B. Douglas ; Ray, Debraj ; Yeltekin, Şevin. / Poverty and Self-Control. In: Econometrica. 2015 ; Vol. 83, No. 5. pp. 1877-1911.
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