Recent research indicates that the poor not only borrow at high rates, but also forego profitable small investments. To be sure, traditional theory-based on high rates of discount and minimum subsistence needs - can take us part of the way to an explanation. But it cannot provide a full explanation, for the simple reason that the poor exhibit a documented desire for commitment.
The fact that individuals are often willing to pay for commitment devices such as illiquid deposit accounts or ROSCA participation suggests that time inconsistency and imperfect self-control are important explanations for low saving and high borrowing, complementary to those based on impatience, minimum subsistence or a failure of aspirations.
A growing literature already recognizes that the (in)ability to exercise self-control is central to the study of intertemporal behavior. Our interest lies in how self-control and economic circumstances interact. If self-control (or the lack thereof) is a fixed trait, independent of personal economic circumstances, then the outlook for policy interventions that encourage the poor to invest in their futures - particularly one-time or short-term interventions - is not good.
But another possibility merits consideration: poverty per se may damage self-control. If that hypothesis proves correct, then the chain of causality is circular, and poverty is itself responsible for the low self-control that perpetuates poverty. In that case, policies that help the poor begin to accumulate assets may be highly effective, even if they are temporary.