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Borrowing on the Wrong Credit Card:Evidence from Mexico

Author

Listed:
  • Alejandro Ponce

    (World Justice Project)

  • Enrique Seira

    (Centro de Investigación Económica (CIE), Instituto Tecnológico Autónomo de México (ITAM))

  • Guillermo Zamarripa

    (FUNDEF, México)

Abstract

We study how consumers allocate debt across credit cards they already hold using new data on credit card activity for a representative sample of consumers with two homogeneous cards in Mexico. We find that relative prices are a very weak predictor of the allocation of debt, purchases, and payments. On average, consumers pay 31% above their minimum financing cost. Evidence on cross-card debt elasticities with respect to interest rates and credit limits show no substitution in the price margin. Our findings offer evidence against the cost-minimizing hypothesis, provide support to behavioral explanations, and have important implications for pricing and competition.

Suggested Citation

  • Alejandro Ponce & Enrique Seira & Guillermo Zamarripa, 2014. "Borrowing on the Wrong Credit Card:Evidence from Mexico," Working Papers 1406, Centro de Investigacion Economica, ITAM.
  • Handle: RePEc:cie:wpaper:1406
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    References listed on IDEAS

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    More about this item

    Keywords

    Credit cards; household finance; consumer behavior; Mexico;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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