| Article ID | Journal | Published Year | Pages | File Type |
|---|---|---|---|---|
| 5059917 | Economics Letters | 2013 | 4 Pages |
Abstract
Access to microfinance entails a risk of over-indebtedness. A naïve present-biased micro-borrower may roll over debt after failure of an investment project financed with an MFI loan, even though she planned not to do so and would not have taken the MFI loan if she had been aware of the time inconsistency of her plan. Similarly, she may use a new loan to repay and end up over-indebted if she discounts the future too strongly relative to her true preferences.
⺠A present-biased micro entrepreneur may face over-indebtedness after rolling over an MFI loan. ⺠This may be due to ignoring the time inconsistency of optimal plans. ⺠She may regret having taken the MFI loan in the first place.
Related Topics
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Economics and Econometrics
Authors
Lutz G. Arnold, Benedikt Booker,