Paper

Self-control, Saving and the Low Asset Trap

Easy access to credit leads to better self-control among households

This paper applies game theory to establish relationships between a household's asset holding, savings and consumption traits (self control) over time. It suggests the following relationships:

  • Existence of a threshold asset holding level below which no self discipline is possible;
  • Below the threshold level, with time, a household consumes its assets down to zero (low asset trap);
  • Above the threshold level, a household can accumulate assets;
  • Easy availability of credit makes self-control easier to implement, and fewer households are caught in the low asset trap.

The paper also states that while intuitively it appears that increasing liquidity would lead to lower self control, this happens only when an individual's existence is caught in the low asset trap. However, increased liquidity leads to fewer households getting caught in this trap and hence has a favorable impact on asset accumulation and self control.

About this Publication

By Ray, D., Bernheim, D. & Yeltekin, S.
Published