Date/Time
Date(s) - 09/10/2024
11:30 am - 12:30 pm

Joaquin Saldain, Senior Economist at the Bank of Canada, will present to our economics graduate students and faculty on Wednesday, October 9th, 11:30am-12:30pm (EST) in KTH 334.

Joaquin’s feilds of research are in macroeconomics and household finance. He will present the paper, “High-Cost Consumer Credit: Desperation, Temptation and Default.”

Abstract

I study the welfare consequences of regulations on high-cost consumer credit in the US, such as borrowing limits and interest rate caps. For some borrowers, it is desirable to borrow at high interest rates when they experience adverse shocks (e.g., to their health). However, others have preferences with self-control issues that may induce them to overborrow. I estimate a heterogeneous-agents model with risk-based pricing of loans that features standard exponential discounters and households with self-control and temptation. I use transaction-level payday lending data and the literature’s valuations of a no-borrowing incentive to identify different household types. I find that one-third of high-cost borrowers suffer from temptation. Although individually targeted regulation could improve the welfare of these households, I find that noncontingent regulatory borrowing limits and interest-rate caps—like those contained in typical regulations of payday loans—reduce the welfare of all types of households. The reason is that lenders offer borrowers tight individually-targeted loan price schedules that limit households’ borrowing capacity so that noncontingent regulatory limits cannot improve welfare over them.

View Joaquin’s professional website.