Increased availability of alcohol might harm individuals if they have time-inconsistent preferences and consume more than planned before. We study this idea by examining the credit behavior of low-income households around the expansion of the opening hours of retail liquor stores during a nationwide experiment in Sweden. Consistent with store closures serve as commitment devices, expanded operating hours led to higher alcohol consumption and greater consumer credit demand, default, and negative consequences in the labor market. Our calculation shows that the effects of alcohol consumption on indebtedness could amount to 3.2 times the expenditure on alcohol.
“Bad Times, Good Credit”, Journal of Money, Credit and Banking, 2020, 52: 107-142. Coauthors: Bo Becker and Kasper Roszbach Abstract
Banks’ limited knowledge about borrowers’ creditworthiness constitutes an important friction in credit markets. Is this friction deeper in recessions, thereby contributing to cyclical swings in credit, or is the depth of the friction reduced, as bad times reveal information about firm quality? We test these alternative hypotheses using internal rating data from a large Swedish cross-border bank and credit scores from a credit bureau. The ability to classify corporate borrowers by credit quality is greater during bad times and worse during good times Soft and hard information measures both display countercyclical patterns. Our results suggest that information frictions in corporate credit markets are intrinsically counter-cyclical and not due to cyclical variation in monitoring effort.
Attention-deficit/hyperactivity disorder (ADHD) exerts lifelong functional impairment, including difficulty maintaining employment, poor credit, and suicide risk. To date, however, most studies have assessed highly-selected samples, often via self-reports. Using mental health data collected from the full Swedish population (N=11.44 million) between 2002-2015 and a random sample of credit bureau data (N=189,267), we provide the first study of financial and suicide outcomes among adults with ADHD. Adjusting for education and income, those with ADHD start adulthood with normal credit demand. However, their default rates grow exponentially into middle age, resulting in diminished access to credit despite high demand. Those with ADHD who suffer marked financial distress show a fourfold higher suicide rate than others with the disorder. Prescription medication use is unassociated with improved financial behaviors.
We exploit a natural experiment to provide one of the first measurements of the causal effect of negative credit information on employment and earnings. We estimate that one additional year of negative credit information reduces employment by 3 percentage points and wage earnings by $1,000. In comparison, the decrease in credit is only one-fourth as large. Negative credit information also causes an increase in self-employment and a decrease in mobility. Further evidence suggests this cost of default is inefficiently borne by those most creditworthy among previous defaulters.
”Scarcity and Consumers’ Credit Choice”, Revision Requested by Theory and Decisions, Swedish House of Finance Research Paper No. 16-19, 2016, Coauthors: Chloe Le Coq and Peter van Santen. Abstract
This paper documents that high-educated borrowers choose a lower loan to value ratio when their budget constraints are exogenously tighter. In contrast, low-educated borrowers do not respond to temporarily elevated levels of scarcity. This lack of response translates into a significantly higher probability of default and an 11.6 percent increase in borrowing cost. We show that a difference in access to liquidity and/or buffer stocks cannot explain our results. Instead, a framework where the awareness of self-control problems is positively correlated with education explains why high-educated, but not low-educated, consumers choose a lower LTV as a commitment device. Our findings highlight that increased levels of scarcity risk reinforcing the conditions of poverty.
”Are We Overdiagnosing Mental Illness? Evidence from Randomly Assigned Doctors”, Working Paper coming out soon! Coauthors: Andrew Hertzberg and Andres Liberman Abstract
More than one in ten adults in the U.S. and Europe are, at any moment in time, diagnosed with a mental illness. This paper asks whether mental illness is over (or under) diagnosed, by looking at its causal effect on individuals at the margin of diagnosis. We follow all Swedish men born between 1971 and 1983 matched to administrative panel data on health, labor, and wealth to estimate the impact of a mental illness diagnosis on subsequent outcomes. Exploiting the random assignment of 18-year-old men to doctors during military conscription, we find that a mental illness diagnosis for people at the margin increases the future likelihood of death, hospital admittance, being sick from work, and unemployment while lowering the probability of being married. Little of these harmful effects are caused by diagnosis altering the chance of serving in the military. Our findings are consistent with the potential over-diagnosis of mental illness.
News:
October 2020; Our project; ”Corporate Restructuring and Mental Health” together with Laurent Bach, Ramin Baghai, and Rui Silva received a research grant from Nasdaq
May 19, 2020: Listen to an audio recording of our paper at Academic Audios, look for their free Sample no. 3: The Labor Market Effects of Credit Market Information
April 22, 2020: Our paper: ”Are We Overdiagnosing Mental Illness? Evidence from Randomly Assigned Doctors”, is accepted at the NBER Summer Institute; Health Economics
May 25, 2019: Our project ”The Price of Love” together with Jenny Säve-Söderbergh and Wenli Li received a research grant from FORTE. read more
Marieke Bos, Emily Breza and Itay Goldstein at SFS Cavalcade 2019, Pittsburgh and Andres Liberman, in front of NYU Stern, NY.
Upcoming Talks, Discussions:
February 29, 2021: I will present in the CEPR webinar series CEPR Advanced Forum in Financial Economics (CAFFE), ”Corporate Restructures and Employees (Mental) Health”, Coauthors Laurent Bach, Ramin Baghai, and Rui Silva
December 9, 2020: I will present (online) ”Corporate Restructures and Employees (Mental) Health”, Coauthors Laurent Bach, Ramin Baghai, and Rui Silva at Foster School of Business University of Washington
December 8, 2020, I will present (online) ”Corporate Restructures and Employees (Mental) Health”, Coauthors Laurent Bach, Ramin Baghai, and Rui Silva at Warwick Business School
”The Impact of Corporate Structure on Employees’ Wellbeing”, Coauthor Laurent Bach Ramin Baghai, and Rui Silva.
”The Price of Love” Coauthors: Jenny Säve-Söderbergh and Wenli Li
The project aims to analyze the financial consequences of the interaction between labor market participation, family formation, income, and savings over the lifecycle, exploiting differences between cohorts and marital status in the possibility to share their pension savings with one’s spouse pre- and post-death.
”ADHD, Time Preferences and Financial decisions”, Coauthor: Itzhak Ben-David
”Ingredients, Health and Economic Outcomes: Machine Learning of Grocery Choice”. Coauthors: Adair Morse, Sara Rosengren, Annette Vissing-Jorgensen.
