| Abstract: |
Using data from Bangladesh, this paper finds that the liquidity premium—the
difference between the interest paid on illiquid and liquid savings
accounts—is higher in commercial banks than in microfinance institutions. One
possible interpretation lies in the higher prevalence of time-inconsistency
among the poor. The observed difference in liquidity premia could be due to
poor time-inconsistent agents willing to forgo interest on illiquid savings
accounts in order to discipline their future selves. |