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Frugality Is Hard to Afford

Ross School of Business Paper No. 1309

Kilts Center for Marketing at Chicago Booth – Nielsen Dataset Paper Series 2-031

45 Pages Posted: 7 Mar 2016 Last revised: 19 Jul 2017

A. Yesim Orhun

University of Michigan, Stephen M. Ross School of Business

Mike Palazzolo

University of California, Davis - Graduate School of Management

Date Written: March 20, 2016

Abstract

Households commonly utilize strategies that provide long-term savings on everyday purchases in exchange for an increase in their short-term expenditures. They buy larger packages of non-perishable goods to take advantage of bulk discounts, and accelerate their purchases to take advantage of temporary discounts. Even though low-income households are more incentivized to save, they are less likely to take advantage of these money-saving strategies. We provide causal evidence that liquidity constraints inhibit low-income households' ability to do so.

Keywords: intertemporal substitution, poverty, liquidity constraints, bulk discounts, purchase acceleration

Suggested Citation

Orhun, A. Yesim and Palazzolo, Mike, Frugality Is Hard to Afford (March 20, 2016). Ross School of Business Paper No. 1309; Kilts Center for Marketing at Chicago Booth – Nielsen Dataset Paper Series 2-031. Available at SSRN: https://ssrn.com/abstract=2742431 or http://dx.doi.org/10.2139/ssrn.2742431

A. Yesim Orhun (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Mike Palazzolo

University of California, Davis - Graduate School of Management ( email )

540 Alumni Ln
Davis, CA 95616
United States

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