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.
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”, Swedish House of Finance Research Paper No 15-05 Coauthors Bo Becker and Kasper Roszbach Forthcoming JMBCAbstract
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 ratings 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.
”Financial Distress and Suicide over the Lifecycle for Individuals with ADHD: A Population Study”, Coauthors: Theodore P. Beauchaine and Itzhak Ben-David. R&R Science AdvancesAbstract
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.
This paper documents that high-educated borrowers choose lower loan to value ratios when their budget constraints are exogenously tighter. In contrast, low-educated borrowers do not respond to temporary elevated levels of scarcity. This lack of response translates into a significantly higher probability to 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.
News:
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, infront of NYU Stern, NY.
Upcoming Talks, Discussions:
April 7, 2020: I will present ”Are We Overdiagnosing Mental Ilness? Evidence from Randomly Assigned Doctors”, Coauthors: Andrew Hertzberg and Andres Liberman at Ohio State University, Econ department.
March 20, 2020: I will discuss at the 2020 Showcasing Women in Finance at the Finance department of Miami Herbert Business School, hosted together with AFFECT and CIBER .
”The Impact of Corporate Structure on Employees’ Wellbeing”, Coauthor Laurent Bach
”The Effects of a Mental Illness Diagnosis at the Margin: Evidence from Randomly Assigned Doctors”, Coauthors: Andrew Hertzberg and Andres Liberman
The project aims to analyze the causal effects of a mental illness diagnosis at age 18 on individuals’ lifetimes health and economic outcomes. In light of the massive increase in mental illness diagnosis around the world during the last decades this project aims to address concerns about the consequences of potential so called ”type 1 versus type 2 errors” in diagnosis.
”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.
