【Job talk】The Payday Loan Puzzle: A Credit Scoring Explanation

  • 研討會日期 : 2021-12-24
  • 時間 : 15:00
  • 主講人 : Mr. Tsung-Hsien Li (李宗憲)
  • 主持人 : Professor Wan-Jung Cheng
  • 地點 : Online or Conference Room B110
  • 演講者簡介 : Mr. Li will receive his Ph.D. in Economics from University of Mannheim in 2022. His primary research interests are Macroeconomics, Computational Economics, and secondary research interests are Consumer Finance and Default, Financial Intermediation. He is applying for a position of the Institute of Economics, Academia Sinica now.
  • 演講摘要 : Many credit cardholders in the U.S. turn to expensive payday loans, even though they have not yet exhausted their credit lines. This results in significant monetary costs and has been coined the “Payday Loan Puzzle.” We propose the novel explanation that households use payday loans to protect their credit scores since payday lenders do not report to credit bureaus. To quantitatively examine this hypothesis, we build a two-asset Huggett-type model with two default options as well as hidden information and actions. Using our calibrated model, we can account for 40% of the empirically identified payday loan borrowers with liquidity left on their credit cards. We can also match the magnitude of monetary costs due to this seeming pecuniary mistake. To inform the policy debate over payday lending, we assess the welfare implications of several policy counterfactuals. We find that either banning payday loans or increasing their default costs results in aggregate welfare losses.