Why Not Borrow, Invest, and Escape Poverty?
Take up of microcredit by the poor for investment in businesses or human capital turned out to be very low. We show that this could be explained by risk aversion, without relying on fixed costs or other forms of non-convexity in the technology, if the investment is aimed at increasing the probabilit...
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Zusammenfassung: | Take up of microcredit by the poor for investment in businesses or human
capital turned out to be very low. We show that this could be explained by risk
aversion, without relying on fixed costs or other forms of non-convexity in the
technology, if the investment is aimed at increasing the probability of
success. Under this framework, rational risk-averse agents choose corner
solutions, unlike in the case of a risky investment with an exogenous
probability of success. Our online experiment confirms our theoretical
predictions about how agents' choices differ when facing the two types of
investments. |
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DOI: | 10.48550/arxiv.2305.02546 |