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Paper or plastic? the effect of time on the use of check and debit cards at grocery stores

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  • Elizabeth Klee
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    Abstract

    Time is a significant cost of conducting transactions, and theoretical models predict that transactions costs significantly affect the type of media of exchange buyers use. However, there is little empirical work documenting the magnitude of this effect. This paper uses grocery store scanner data to examine how time affects consumer choices of checks and debit cards. On average, check transactions take thirty percent longer than debit card transactions. This time difference is a significant factor in the choice to use a debit card over a check and offers empirical evidence for transactions costs affecting the use of media of exchange.

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    File URL: http://www.federalreserve.gov/pubs/feds/2006/200602/200602abs.html
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    File URL: http://www.federalreserve.gov/pubs/feds/2006/200602/200602pap.pdf
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    Bibliographic Info

    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2006-02.

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    Date of creation: 2006
    Date of revision:
    Handle: RePEc:fip:fedgfe:2006-02

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    Related research

    Keywords: Consumer behavior ; Checks;

    This paper has been announced in the following NEP Reports:

    References

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    1. Fumiko Hayashi & Elizabeth Klee, 2002. "Technology adoption and consumer payments : evidence from survey data," Payments System Research Working Paper PSR WP 02-01, Federal Reserve Bank of Kansas City.
    2. Judith A. Chevalier & Anil K. Kashyap & Peter E. Rossi, 2000. "Why Don't Prices Rise During Periods of Peak Demand? Evidence from Scanner Data," NBER Working Papers 7981, National Bureau of Economic Research, Inc.
    3. Raa, T. ten & Shestalova, V., 2004. "Empirical evidence on payment media costs and switch points," Open Access publications from Tilburg University urn:nbn:nl:ui:12-140874, Tilburg University.
    4. Whitesell, William C, 1992. "Deposit Banks and the Market for Payment Media," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(4), pages 483-98, November.
    5. Shy, Oz & Tarkka, Juha, 2002. "The Market for Electronic Cash Cards," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 299-314, May.
    6. Dowd, Kevin, 1990. "The Value of Time and the Transactions Demand for Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(1), pages 51-64, February.
    7. Lee, Lung-Fei, 1978. "Unionism and Wage Rates: A Simultaneous Equations Model with Qualitative and Limited Dependent Variables," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 19(2), pages 415-33, June.
    8. Brueckner, Jan K & Follain, James R, 1988. "The Rise and Fall of the ARM: An Econometric Analysis of Mortgage Choice," The Review of Economics and Statistics, MIT Press, vol. 70(1), pages 93-102, February.
    9. Karni, Edi, 1973. "The Transactions Demand for Cash: Incorporation of the Value of Time into the Inventory Approach," Journal of Political Economy, University of Chicago Press, vol. 81(5), pages 1216-25, Sept.-Oct.
    10. Murphy, Kevin M & Topel, Robert H, 1985. "Estimation and Inference in Two-Step Econometric Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(4), pages 370-79, October.
    11. Geoffrey R. Gerdes & Jack K . Walton II, 2002. "The use of checks and other noncash payment instruments in the United States," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Aug, pages 360-374.
    12. Gerald S. Oettinger, 1999. "An Empirical Analysis of the Daily Labor Supply of Stadium Vendors," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 360-392, April.
    13. Robert C. Feenstra & Matthew D. Shapiro, 2003. "Scanner Data and Price Indexes," NBER Books, National Bureau of Economic Research, Inc, number feen03-1, October.
    14. Austan Goolsbee & Amil Petrin, 2001. "The Consumer Gains from Direct Broadcast Satellites and the Competition with Cable Television," NBER Working Papers 8317, National Bureau of Economic Research, Inc.
    15. ten Raa, Thijs & Shestalova, Victoria, 2004. "Empirical evidence on payment media costs and switch points," Journal of Banking & Finance, Elsevier, vol. 28(1), pages 203-213, January.
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    Cited by:
    1. Wilko Bolt & David Humphrey & Roland Uittenbogaard, 2008. "Transaction Pricing and the Adoption of Electronic Payments: A Cross-Country Comparison," International Journal of Central Banking, International Journal of Central Banking, vol. 4(1), pages 89-123, March.
    2. Ching, Andrew & Hayashi, Fumiko, 2008. "Payment Card Rewards Programs and Consumer Payment Choice," MPRA Paper 8458, University Library of Munich, Germany.

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