Savings, investment and some distributional aspects of a share economy based on Islamic financial principles (Ph.D. Dissertation)

The author attempts to establish microeconomic foundations for an Islamic economic system which replaces the institution of interest with profit and loss sharing schemes endemic to Islamic law. Two models were constructed to analyze saving and investment patterns in an Islamic economic system. The first model is constructed in a deterministic framework and the second in an element of uncertainty. Each model is based on Islamic modes of finance: musharka and mudaraba. The former model presents all economic agents as being allowed to produce and consume a single commodity. Each individual maximizes lifetime utility subject to the budget constraint. In the mudaraba model there are two different groups of individuals, households and producers. All consumption is done by the households who also provide all loanable funds. The households maximize lifetime utility and produces maximize profit. A separate model of the interest system is constructed in each case. Using a log utility