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Why Do Shoppers Use Cash? Evidence from Shopping Diary Data

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Author Info

  • Naoki Wakamori
  • Angelika Welte

Abstract

Recent studies find that cash remains a dominant payment choice for small-value transactions despite the prevalence of alternative means of payment such as debit and credit cards. For policy makers an important question is whether consumers truly prefer using cash or merchants restrict card usage. Using the Bank of Canada’s 2009 Method of Payment Survey, we estimate a generalized multinomial logit model of payment choices to extract individual heterogeneity (demand-side factors) while controlling for merchants’ acceptance of cards (supply-side factors). Based on a counterfactual exercise where we assume universal card acceptance among merchants, we find that some consumers would decrease their cash usage but the magnitude of this decrease is small. Our results imply that the use of cash in small-value transactions is driven mainly by consumers’ preferences.

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File URL: http://www.bankofcanada.ca/wp-content/uploads/2012/07/wp2012-24.pdf
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Bibliographic Info

Paper provided by Bank of Canada in its series Working Papers with number 12-24.

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Length: 41 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:bca:bocawp:12-24

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Related research

Keywords: Bank notes; Econometric and statistical methods; Financial services;

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References

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  1. Carlos Arango & Dylan Hogg & Alyssa Lee, 2012. "Why Is Cash (Still) So Entrenched? Insights from the Bank of Canada’s 2009 Methods-of-Payment Survey," Discussion Papers 12-2, Bank of Canada.
  2. Denzil G. Fiebig & Michael P. Keane & Jordan Louviere & Nada Wasi, 2010. "The Generalized Multinomial Logit Model: Accounting for Scale and Coefficient Heterogeneity," Marketing Science, INFORMS, vol. 29(3), pages 393-421, 05-06.
  3. Fox, Jeremy T. & Kim, Kyoo il & Ryan, Stephen P. & Bajari, Patrick, 2012. "The random coefficients logit model is identified," Journal of Econometrics, Elsevier, vol. 166(2), pages 204-212.
  4. Carlos Arango & Kim P. Huynh & Leonard Sabetti, 2011. "How do you pay? The role of incentives at the point-of-sale," Working Paper Series 1386, European Central Bank.
  5. Ron Borzekowski & Elizabeth K. Kiser & Shaista Ahmed, 2006. "Consumers' use of debit cards: patterns, preferences, and price response," Finance and Economics Discussion Series 2006-16, Board of Governors of the Federal Reserve System (U.S.).
  6. Manski, Charles F., 1975. "Maximum score estimation of the stochastic utility model of choice," Journal of Econometrics, Elsevier, vol. 3(3), pages 205-228, August.
  7. Harris, Katherine M. & Keane, Michael P., 1998. "A model of health plan choice:: Inferring preferences and perceptions from a combination of revealed preference and attitudinal data," Journal of Econometrics, Elsevier, vol. 89(1-2), pages 131-157, November.
  8. Oz Shy & Zhu Wang, 2011. "Why Do Payment Card Networks Charge Proportional Fees?," American Economic Review, American Economic Association, vol. 101(4), pages 1575-90, June.
  9. Lancaster, Tony, 2000. "The incidental parameter problem since 1948," Journal of Econometrics, Elsevier, vol. 95(2), pages 391-413, April.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. People do not want a cashless society
    by Economic Logician in Economic Logic on 2012-08-30 15:03:00
  2. [??]????????????????????
    by himaginary in himaginaryの日記 on 2012-09-20 07:00:00

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