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Rational Exuberance at the Mall: Addiction to Carrying a Credit Card Balance

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Abstract

We test the Becker-Murphy model of rational addiction with New Zealand credit card debt data. Our results clearly favour the rational addiction model over the myopic, backward-looking model. The estimated short-run and long-run price elasticities are -0.58 and -2.32 respectively, and the estimated rate of time-preference is 6.7% per quarter.

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Bibliographic Info

Paper provided by Department of Economics, University of Victoria in its series Econometrics Working Papers with number 0508.

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Length: 13 pages
Date of creation: 21 Jun 2005
Date of revision:
Handle: RePEc:vic:vicewp:0508

Note: ISSN 1485-6441
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Postal: PO Box 1700, STN CSC, Victoria, BC, Canada, V8W 2Y2
Phone: (250)721-6197
Fax: (250)721-6214
Web page: http://web.uvic.ca/econ
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Keywords: Rational addiction; credit card debt;

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