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Adoption Costs of Financial Innovation: Evidence from Italian ATM Cards

Author

Listed:
  • Kim Huynh
  • Philipp Schmidt-Dengler
  • Gregor W. Smith
  • Angelika Welte

Abstract

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.

Suggested Citation

  • Kim Huynh & Philipp Schmidt-Dengler & Gregor W. Smith & Angelika Welte, 2017. "Adoption Costs of Financial Innovation: Evidence from Italian ATM Cards," Staff Working Papers 17-8, Bank of Canada.
  • Handle: RePEc:bca:bocawp:17-8
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    References listed on IDEAS

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    Keywords

    Bank notes; Econometric and statistical methods; Financial services;

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions

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