Financial Inclusion in Papua New Guinea

Intertemporal Trade: optimal allocation of consumption over time • To become FI, HH must incur resource cost the first period, f (d) (iceberg cost fraction of each unit of labor melts away) - ▸ income in the first period is reduced to Y₁ = wL/ (1+ f (d)) (income in the second period remains at Y₂ = WL) f(0) = 0, f' (d) > 0 ▸ more remotely HHs have to incur higher costs to become Fl • FI HH can optimally allocate expenditure across time. • PV of wealth for FI HH, W, is W = wL WL 2+r+f + = WL 1+f 1+r where r is the economy-wide interest rate. 590 Davies & Nettuno Financial Inclusion in Papua New Guinea August 4, 2022 19/36

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