Joaquin Saldain Presents at 2021 SEA, LACEA LAMES and NTA Meetings

Wednesday, December 1, 2021

Joaquin Saldain, a sixth-year student, presented his paper, "A Quantitative Model of High-Cost Consumer Credit," at the 2021 Annual SEA, LACEA LAMES and NTA Meetings. Joaquin provided the following summary of his work: "I study the welfare consequences of regulations on high-cost consumer credit in the US, such as borrowing limits and interest rate caps. 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. "