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Adoption Costs of Financial Innovation: Evidence from Italian ATM Cards

Listed author(s):
  • Kim Huynh
  • Philipp Schmidt-Dengler
  • Gregor W. Smith
  • Angelika Welte

The discrete choice to adopt a financial innovation affects a household’s exposure to inflation and transactions costs. We model this adoption decision as being subject to an unobserved cost. Estimating the cost requires a dynamic structural model, to which we apply a conditional choice simulation estimator. A novel feature of our method is that preference parameters are estimated separately, from the Euler equations of a shopping-time model, to aid statistical efficiency. We apply this method to study ATM card adoption in the Bank of Italy’s Survey of Household Income and Wealth. There, the implicit adoption cost is too large to be consistent with standard models of rational choice, even when sorted by age, cohort, education or region.

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File URL: http://www.bankofcanada.ca/wp-content/uploads/2017/02/swp2017-8.pdf
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Paper provided by Bank of Canada in its series Staff Working Papers with number 17-8.

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Length: 44 pages
Date of creation: 2017
Handle: RePEc:bca:bocawp:17-8
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Web page: http://www.bank-banque-canada.ca/

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