My ssrn page (here)
”The Labor Market Effects of Credit Market Information”, Review of Financial Studies, June 2018, 31(6), 2005-2037, Editor’s Choice, Coauthors: Marieke Bos and Emily Breza. Abstract
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.
“Should Defaults Be Forgotten? Evidence from Variation in Removal of Negative Consumer Credit Information”, FRB of Philadelphia Working Paper No. 14-21, Coauthor Leonard Nakamura. New version Aug 2018 Abstract
The practice of penalizing consumers long after they have paid off their debts continues to spark a debate on the length of time that defaults are retained in individuals credit records. By exploiting a natural experiment that generated exogenous variation in retention times, we analyze what happens when retention times are reduced. We find that the loss of information led banks to tighten their lending standards significantly. However as the number of individuals in the economy with clean records increased due to the reduction in retention time, net access to credit in the economy improved. Furthermore as a borrower’s incentive to exert more effort increases, overall default risk in the economy decreased. We cannot rule out that this reduction in retention time is optimal.
”Are You More than your Credit Score?” Coauthors: Emily Breza and Andres Liberman Work in progress
”Scarcity and Consumers’ Credit Choice”, Swedish House of Finance Research Paper No. 16-19, 2016, Coauthors: Chloe Le Coq and Peter van Santen. Submitted July 2018 Abstract
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.
”Impulsive Consumption and Financial Wellbeing: Evidence from an Increase in the Availability of Alcohol”, NBER Working Paper No. w23211, Coauthor: Itzhak Ben-David. Revision Requested RFS Abstract
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.
“Relative Income, Indebtedness and Defaults: An Empirical Characterisation ”, Coauthors Mats Levander and Erik von Schedvin. Working paper coming out soon Abstract
Using a panel dataset on individual borrowing characteristics and neighbourhood income, we assess the role of relative income for indebtedness and payment delinquencies. We find that a worsening of relative
income vis-à-vis similar aged neighbors leads to higher indebtedness, which primarily is due to shifts in consumption debt. This relationship is not accompanied by a rise in loan delinquencies; however, we document results indicating over-indebtedness and financial distress for a set of demographic sub-groups that presumably are more responsive to peer influences, e.g., younger individuals. Our analysis is carefully structured to account for selection effects and omitted variables.
“Balancing Act: New Evidence and a Discussion of the Theory on the Rationality and Behavioral Anomalies of Choice in Credit Markets,” joined with Susan Payne Carter and Paige Marta Skiba . In Research Handbook in Behavioral Law and Economics, eds., Joshua C. Teitelbaum and Kathryn Zeiler. London, UK: Edward Elgar Publishing, 2018. ISBN: 978 1 84980 567 4 Book available (here)
FINANCIAL AND MENTAL HEALTH
”Financial Distress and Suicide over the Lifecycle for Individuals with ADHD: A Population Study”, Coauthors: Theodore P. Beauchaine and Itzhak Ben-David. New! Abstract
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.
”Depression and Finance”, joined with Andrew Hertzberg and Andres Liberman Work in progress
”ADHD, Time Preferences and Financial decisions”, Coauthor: Itzhak Ben-David Work in progress
“Bad Times, Good Credit”, Swedish House of Finance Research Paper No 15-05 Coauthors Bo Becker and Kasper Roszbach Submitted March 2018 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 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.
”Impact of a Decrease on Credit Bureaus’ Memory on the Borrowing Behavior of Firms and Lenders” , Coauthors: Paola Morales and Kasper Roszbach New version coming soon Abstract
Around the globe, credit bureaus restrict the length of time that negative credit information of firms can be retained. The large variance in retention times across countries illustrates the lack of consensus on the optimal memory of negative information. By exploiting a variation in retention time of negative information for firms, provided by the introduction of the Habeas Data law in Colombia, we are able to analyze the causal link between the length of the credit bureaus retention time and the subsequent behavior by lenders and borrowers. The law was ratified in 2009 and prohibited institutions in Colombia to access the entire credit history of borrowers. Since then, the negative credit information is observable only for a period that depends on the length of the delinquency period. Our results, suggest that after the introduction of the Habeas Data law: i) the duration of loan delinquency periods is longer, ii) firms seem to strategically wait long enough, until their negative records disappear from the credit bureaus, before switching banks, iii) banks grant loans with higher spreads on interest rates, lower collateral requirements, larger loan amounts and longer maturities. In addition, we find empirical evidence of both ex ante and ex post theories of collateral.
ALTERNATIVE CREDIT MARKETS
“The Pawn Industry and Its Customers: The United States and Europe”, Vanderbilt Law and Economics Research Paper No. 12-26, Coauthors: Susan P. Carter and Paige M. Skiba. Abstract
As humankind’s oldest financial institution, pawnbroking has served the financial needs of low-income families for centuries. Recently, and especially in the last five years, an increasing number of consumers have relied on pawnbrokers to help them meet daily financial needs. Seven percent of all U.S. and four percent of all Swedish households have used pawn credit at one time or another. Despite the general public’s increased interest in the pawn industry, evidenced by the popularity of reality television shows like “Pawn Stars” and “Hard Core Pawn,” economists have paid surprisingly little attention to the pawnbroking industry and pawnshop borrowers. We start by reviewing the history of pawn credit and the sparse economic literature on pawnbroking, and then present unique U.S. transaction data and Swedish register data to, first, show aggregate trends, and, second, shed light on the social and financial background of pawnshop borrowers and their behavior within the pawnbroking industry in both countries. We find that the pawnbroking industry and pawnshop borrowers are unexpectedly similar in the United States and Sweden.
”Rationality in the Consumer Credit Market: Choosing between Alternative and Mainstream Credit”, joined with Sumit Agarwal. Editing stage In Mandel and Haughwout – Handbook of U.S. Consumer Economics (Work in Progress)