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Working Paper
Cognitive abilities and household financial decision making
We analyze the effects of cognitive abilities on two examples of consumer financial decisions where suboptimal behavior is well defined. The first example refers to consumers who transfer the entire balance from an existing credit card account to a new account, but use the new card for convenience transactions, resulting in higher interest charges. The second example refers to consumers who face higher APRs because they inaccurately estimate their property value on a home equity loan or line of credit application. We match individuals from the US military for whom we have detailed test scores ...
Working Paper
Spending responses to state sales tax holidays
Every year over 20 states offer sales tax holidays (STHs) on specific items like clothes, shoes and other items to encourage consumption, affecting over 100 million consumers. We use a unique dataset of credit cards transaction to study the spending response to these holidays. Using a diff-in-diff methodology, we find that STHs increase overall daily spending by 8%, with large percentage increases in spending on children?s clothes and shoes of 193% and 98% respectively. Consumers with children increase spending more during STHs. Our estimates of price elasticities range from 6 for big box ...
Conference Paper
Distance and information asymmetries in lending decisions
Journal Article
How do private firms use credit lines?
The authors find that firms that face higher upfront commitment fees, risk premium spreads or usage fees have smaller credit lines, while those with higher overdraft fees have larger ones. Firms with greater profit growth in the past have larger credit lines, while those with more internal funds or higher volatility in profit growth have smaller credit lines. The results for line utilization are quite similar.
Working Paper
The age of reason: financial decisions over the lifecycle
The sophistication of financial decisions varies with age: middle-aged adults borrow at lower interest rates and pay fewer fees compared to both younger and older adults. We document this pattern in ten financial markets. The measured effects cannot be explained by observed risk characteristics. The sophistication of financial choices peaks around age 53 in our cross-sectional data. Our results are consistent with the hypothesis that financial sophistication rises and then falls with age, although the patterns that we observe represent a mix of age effects and cohort effects.
Working Paper
The Opioid Epidemic and Consumer Credit Supply: Evidence from Credit Cards
Using a unique data set of unsolicited credit card offer mailings by banks to consumers, we investigate how opioid abuse affects consumer credit supply in the U.S. To identify causal effects, we employ instrumental variables, propensity score matching, and contiguous counties techniques and control for varying local economic conditions and demographics. We find that banks contract credit supply to consumers in counties highly exposed to opioid abuse by offering higher interest rates, lower credit card limits, and fewer rewards and reducing credit offers overall. Further analyses using the ...
Working Paper
Owe a Bank Millions, the Bank Has a Problem: Credit Concentration in Bad Times
How does a bank react when a substantial share of its borrowers suffer a large negative shock? To answer this question we exploit the 2014 collapse of energy prices using the universe of Mexican commercial bank loans. We show that, after the drop in energy prices, banks exposed to the energy sector increased their exposure to these borrowers even more, relaxing credit margins to their larger debtors in the sector. An increase of one standard deviation in a bank's ex-ante exposure to the energy sector increased the loan volume to borrowers in the sector by 18 percent and reduced interest rates ...
Working Paper
Reducing Strategic Default in a Financial Crisis
We document that increasing penalties for default reduces strategic default in financial crises by exploiting the 2009 changes to Canadian consumer insolvency regulations. Our novelty is that the incentives from increasing penalties for default operate in the opposite direction from incentives in more typical financial crisis policy interventions, which increase the liquidity of debtors. We can identify strategic default because our policy intervention is independent of debtors’ liquidity and initial selection into long-term debt contracts. Our results imply that even insolvent debtors can ...
Journal Article
Determinants of automobile loan default and prepayment
The authors examine whether a borrower?s choice of automobile reveals information about future loan performance. They find that loans on most luxury automobiles have a higher probability of prepayment, while loans on most economy automobiles have a lower probability of default, even when holding traditional risk factors, such as income and credit score, constant.
Journal Article
Homebuilders, Affiliated Financing Arms and the Mortgage Crisis
The authors? findings indicate that homebuilder financing affiliates do make loans to observably riskier borrowers, but the loans made by homebuilders have lower delinquency rates than those made by unaffiliated lenders, even when loan and borrower characteristics are held constant.