When requesting a correction, please mention this item's handle: RePEc:red:sed018:1033. You can help correct errors and omissions. Suggested CitationĪll material on this site has been provided by the respective publishers and authors. We calibrate a model with financial frictions and high yield, indivisible investments to the empirical results, and evaluate their importance for aggregate development and the impacts of financial frictions. Higher payoffs are associated with increased savings, especially if the payoffs are sufficient to enable indivisible investments. Consistent with the presence of high yield, indivisible investments, we find significant rates of risk-loving demand (27 percent) and impatient demand (71 percent), and this demand is linked to savings and returns. We also offer them an opportunity to delay receipt, earning interest. We also offer them a chance between an safer payoff or riskier, larger payoff. Specifically, we offer households a choice between a safer, low payoff and a riskier, large payoff lotteries.
This paper uses a cash grant experiment in rural and semi-urban Uganda to evaluate how quantitatively important these investment indivisibilities may be.
When facing such investments, agents can be more risk-loving and impatient. In theory, high yield, indivisible investments investment indivisibilities and the nonconvexities in production can play crucial roles in development, especially when financial frictions are present.
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