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Household debt, automatic bill payments and inattention: Theory and evidence

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  • Delgado Fuentealba, Carlos L.
  • Muñoz Mendoza, Jorge A.
  • Sepúlveda Yelpo, Sandra M.
  • Veloso Ramos, Carmen L.
  • Fuentes-Solís, Rodrigo A.

Abstract

In this article we analyze the impact of automatic bill payment (ABP) on household debt. We present a theoretical intertemporal consumption model that shows an inattention effect when individuals subscribe an ABP for their debts. This effect causes a higher level of indebtedness (beyond optimal) and, therefore, well-being loss. Furthermore, we empirically test this theory for Chile, an emerging economy. We estimate a Tobit-Probit conditional mixed process (CMP) model, using data from the Central Bank of Chile’s Household Financial Survey (HFS). The results confirm the existence of a positive and significant effect of the use of ABP on the financial burden of households.

Suggested Citation

  • Delgado Fuentealba, Carlos L. & Muñoz Mendoza, Jorge A. & Sepúlveda Yelpo, Sandra M. & Veloso Ramos, Carmen L. & Fuentes-Solís, Rodrigo A., 2021. "Household debt, automatic bill payments and inattention: Theory and evidence," Journal of Economic Psychology, Elsevier, vol. 85(C).
    • Handle: RePEc:eee:joepsy:v:85:y:2021:i:c:s0167487021000234
    DOI: 10.1016/j.joep.2021.102385
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