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Why Do Shoppers Use Cash? Evidence from Shopping Diary Data

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

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References

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  4. Carlos Arango & Angelika Welte, 2012. "The Bank of Canada’s 2009 Methods-of-Payment Survey: Methodology and Key Results," Discussion Papers 12-6, Bank of Canada.
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  16. Zinman, Jonathan, 2009. "Debit or credit?," Journal of Banking & Finance, Elsevier, vol. 33(2), pages 358-366, February.
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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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Cited by:
  1. Michael Cohen & Marc Rysman, 2013. "Payment choice with consumer panel data," Working Papers 13-6, Federal Reserve Bank of Boston.
  2. Eschelbach, Martina & Schmidt, Tobias, 2013. "Precautionary motives in short-term cash management: Evidence from German POS transactions," Discussion Papers 38/2013, Deutsche Bundesbank, Research Centre.

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