retail payments new contributions empirical results and unanswered questions abstract we offer a selected survey of retail payments and suggest areas where additional research would prove useful after summarizing eight papers presented at a recent norges bank central bank of norway payment conference and published in this volume we show how they and many of the other papers presented there have contributed to the payments literature we also illustrate how institutional and other differences across countries led to different payment arrangements historically which now due to technological innovation affecting bank costs have made payment arrangements across countries more homogeneous

in love with the debit card but still married to cash abstractusing shopping diary survey data we show that changing payment patterns is a challenging task even when consumers have fallen in love with a new payment instrument they find it hard to divorce from their old payment instrument we find a discrepancy between how consumers prefer to pay and how they actually pay half of the consumers who prefer the debit card to cash don t use the debit card to pay a majority of their point of sale transactions our regression results show that the habit of paying cash plays a significant role explaining the presence of a gap

payment card rewards programs and consumer payment choice abstract by using a unique data set that contains detailed information about consumer payment choice and consumers attitudes toward each payment method we estimate the effects of payment card rewards on consumer choice of payment methods our approach allows us to control for consumer heterogeneity we find the effects of rewards to be statistically significant across five retail types our policy experiments suggest that for the sub population who hold both credit and debit cards removing rewards would increase their share of paper based payment methods i e cash and checks measured in terms of in store transactions by no more than 4 percentage points

choosing how to pay the influence of foreign backgrounds abstract is having a foreign background a relevant factor in choosing between payment instruments in consumer point of sale transactions after migration we analyze this question using a unique diary survey in which both participants with a dutch and a foreign background documented their daily purchases we present several pieces of evidence suggesting that foreign backgrounds still influence the choice between payment instruments after migration to the netherlands for instance we find that first generation migrants from a number of countries that can be seen as cash oriented are more likely to use cash in the netherlands at the same time second generation migrants have similar payment habits as individuals with a dutch background this finding suggests that payment behavior is not passed on between generations but affected by host country payment habits finally we suggest that in this context special information campaigns to increase debit card usage will not have clear net social benefits

compatibility and bundling of complementary goods in a duopoly this paper presents a simple model of compatibility and bundling in industries where consumers assemble several necessary components into a system that is close to their ideal the authors show that for a wide range of parameters firms will choose to produce compatible components but will offer discounts to consumers who purchase all components from the same firm however firms would be better off if they could commit not to provide such discounts furthermore the equilibrium tends to involve socially excessive bundling finally mixed bundling strategies tend to increase the range of parameters over which socially excessive standardization occurs copyright 1992 by blackwell publishing ltd

inflation and welfare in a monetary economy it is in everyone s private interest to try to get someone else to hold non interest bearing cash and reserves but someone has to hold it all so these efforts must simply cancel out all of us spend several hours per year in this effort and employ thousands of talented and highly trained people to help us these person hours are simply thrown away wasted on a task that should not have to be performed at all

overdrafts and the demand for money this paper presents a stochastic analysis of the demand for interest bearing money such as now accounts when overdrafting is allowed at some penalty rate it is shown that the short run interest elasticity of money demand is probably large in absolute value and negative but in the long run this elasticity is much smaller or even positive it is also argued that current definitions of the monetary aggregates which exclude unused credit may spuriously generate instability of money demand an alternative definition of money stock is suggested and seems to be conceptually more satisfying copyright 1990 by american economic association

why do people use debit cards evidence from checking accounts i introduction debit card use has grown faster than any other payment instrument in the united states a minor segment of the market used debit cards in 1998 however figure 1 shows that because of rapid growth in their use more transactions are made with debit than with credit cards the puzzle of debit s popularity is that explicit costs appear to favor credit over debit with debit money immediately comes out of the bank account whereas with credit the household is billed for purchases at the end of the month and pays within a further grace period as long as no balance is carried on the credit card the consumer pays no interest this float may be minor if evaluated at a savings account interest rate however for liquidity constrained households the opportunity cost payday loans or bank bounce protection is quite high credit cards also offer the option to convert the balance into an uncollateralized loan with zero transaction cost most credit cards offer rewards cash back airline miles gift certificates warranty on purchase charitable donations etc or a below market interest rate only 5 7 of banks offer rewards on their signature debit cards moebs services inc 2006 and some financial institutions 15 charge a fee for pin debit purchases ranging from 10 cents to 2 dollars per transaction the goal of this paper is to investigate the factors that have caused a seemingly dominated product to become a market leader consumer debit card choice has implications for monetary policy as such choices affect money demand and money transmission mechanisms with 894 billion in credit card debt at the end of 2009 and 1 4 million personal bankruptcies in 2009 americans ability to effectively manage personal finances can have a strong effect on standard of living as payment card networks exhibit network externalities market concentration and its suppressive effects on competition is of concern to antitrust regulators the extent to which these network externalities exist is dependent on the degree of substitutability of competing payment media survey evidence such as found in the studies of zinman 2009 stavins 2001 borzekowski and kiser 2008 and borzekowski kiser and ahmed 2008 offers several motivations for choosing debit over credit cost convenience merchant acceptance time at checkout purchase tracking safety being credit constrained and spending restraint zinman notes that up to 31 of households could use debit for self restraint uniquely we use household transactions level data a course of action recommended by zinman the sufficiently rich data are consistent with spending control purchase tracking merchant acceptance and pecuniary motives paying interest when revolving a credit card balance as an explanation for some households debit use figure 1 omitted much of the growth in debit card use has come at the expense of checks or cash from 1995 to 2003 electronic payments grew from 23 to 55 of all payments borzekowski and kiser 2008 find that the closest substitutes for debit are cash checks and credit in that order however the debit versus credit comparison is quite clean debit and credit equate in many dimensions considered by klee 2006 and recently available data to track debit transactions as opposed to the anonymity of cash however with atm withdrawals observable we are able to compare debit and credit to cash to speculate whether debit card use might be correlated with spending control motives we look for evidence that debit card users are paying down a credit card balance the checking account data contains credit card payments but not credit card balances while the data do not contain full information about credit card balances they do contain payments to credit cards this is enough information to show that debit users are more likely to pay the same amount in multiple months a sign that they are paying a credit card balance

whither loose change the diminishing demand for small denomination currency while payment card usage has increased dramatically the stock of outstanding currency has not declined as rapidly we analyze changes in cash demand for 13 advanced economies from 1988 to 2003 by separating cash into three denomination categories to disentangle its store of wealth and payment functions defining denominations commonly dispensed by automated teller machines atms as the medium category we show that demand for small denomination currency decreases with greater debit card usage and with greater retail market consolidation in contrast the demand for high denomination notes decreases when interest rates rise but is generally unaffected by changes in debit card usage

desirability of compatibility in the absence of network externalities i compare the incentives firms have to produce individual components compatible with components of other manufacturers instead of systems composed of components that are incompatible with components of competing manufacturers i show that even in the absence of positive consumption externalities network externalities prices and profits will be higher in the regime of compatibility equilibrium total surplus could be higher in either regime both regimes overprovide variety compared to the surplus maximizing solution in today s environment many products are complex specified by a long array of characteristics part of the decision of the firm is to choose if it should break this long array of features into two or more smaller parts and produce the products corresponding to the smaller arrays instead of the product that embodies the full array we will call the products that correspond to these smaller arrays components and the product that corresponds to the full array a system note that components are by their definition complements components produced by different manufacturers are compatible if it is feasible for the consumers to combine them costlessly into a working system in this paper we will assume that there are two components which make up a system we will discuss competition under full compatibility when components produced by all firms are compatible with each other and under incompatibility when no components produced by different firms are compatible and no hybrid systems can exist 2 assuming availability of the same

cash burns an inventory model with a cash credit choice abstract a dynamic cash management model is analysed where agents choose whether to pay with cash or credit at every point in time in the model credit usage depends on the current stock of cash a novel result that matches recent micro evidence on households payment choices the optimality of such a decision rule is novel and cannot be obtained by models where cash credit decisions are made at the beginning of each period we discuss how to use the model to account for cross country evidence on the intensity of credit usage and for several statistics on the size and frequency of cash withdrawals the model is used to assess the household s welfare cost of phasing out cash

monetary aggregates and output series title working paper frb title monetary aggregates and output date publication federal reserve bank of cleveland working paper no 9813 author s scott freeman finn kydland type working paper frb topics s us economy

hedonic price indexes for spreadsheets and an empirical test for network externalities in this article i first estimate hedonic price equations for computer spreadsheet programs and then use the analysis to empirically test whether network externalities exist in this industry the study shows that consumers are willing to pay a significant premium for spreadsheets that are compatible with the lotus platform and for spreadsheets that offer links to external databases and a similar premium for spreadsheets that offer local area network externalities finally the quality adjusted real price of computer spreadsheets declined by approximately 15 per year from 1986 to 1991

drift control of international reserves abstract we develop a model of optimal reserve holdings where the reserve authority controls the upward and downward drift of international reserves and chooses the trigger points that induce changes in drift we argue that this drift control model better describes the dynamic behavior of reserves than does the popular buffer stock model we present an innovative mathematical tool for analyzing the drift control based on martingale stopping theory since the reserve authority has more instruments with drift control than with a buffer stock strategy it can manage reserves at significantly lower cost

financial innovation and the transactions demand for cash we document cash management patterns for households that are at odds with the predictions of deterministic inventory models that abstract from precautionary motives we extend the baumol tobin cash inventory model to a dynamic environment that allows for the possibility of withdrawing cash at random times at a low cost this modification introduces a precautionary motive for holding cash and naturally captures developments in withdrawal technology such as the increasing diffusion of bank branches and atm terminals we characterize the solution of the model which qualitatively reproduces several empirical patterns we estimate the structural parameters using micro data and show that quantitatively the model captures important economic patterns the estimates are used to quantify the expenditure and interest rate elasticity of money demand the impact of financial innovation on money demand the welfare cost of inflation and the benefit of atm ownership

staunching emigration from east germany age and the determinants of migration following the unification of germany in 1990 eastern wages and unemployment both rose rapidly i demonstrate that rising wages reduced eastern emigration greatly while rising unemployment had little effect this reflects the behavior of the young who are very sensitive to source region wages and relatively insensitive to source unemployment i show that most of the effect of source unemployment comes from the contemporaneous effect on those laid off who are more likely to be older i find that compared to stayers young emigrants are much more skilled older emigrants are slightly more skilled and commuters are not more skilled as measured by education and pre move wages my conclusions are based on a comparison of results from aggregate inter state migration data and individual data from the eastern sample of the german socio economic panel for 1990 2000 jel j61 p23

realizing the gains from electronic payments costs pricing and payment choice the growth of electronic payments can substantially reduce the social cost of a country s payment system we provide an estimate of the potential savings in social cost and determine the responsiveness of payment users when relative prices are used to speed up the substitution of electronic for paper based payments while some countries norway japan have encouraged their banking systems to establish explicit prices to promote electronic payments others the united states have not for the first time ever survey data are available to permit estimation of a model of payment choice from which own price cross price and payment substitution elasticities are derived the data which are semiannual panel data concern the use of three methods for making retail payments in norway cash withdrawals at atms writing a check or using a debit card at the point of sale our finding that payment users are quite sensitive to relative prices that reflect the relatively lower cost of electronic payments is generalizable both production techniques and consumer needs for payment instruments are very similar across developed countries even though instrument usage differs

consumers use of debit cards patterns preferences and price response debit card use at the point of sale has grown dramatically in recent years in the united states and now exceeds the number of credit card transactions however many questions remain regarding patterns of debit card use consumer preferences when using debit and how consumers might respond to explicit pricing of card transactions using a new nationally representative consumer survey this paper describes the current use of debit cards by u s consumers including how demographics affect use in addition consumers stated reasons for using debit cards are used to analyze how consumers substitute between debit and other payment instruments we also examine the relationship between household financial conditions and payment choice finally we use a key variable on bank imposed transaction fees to analyze price sensitivity of card use and find a 12 decline in overall use in reaction to a mean 1 8 fee charged on certain debit card transactions we believe this represents the first microeconomic evidence in the united states on price sensitivity for a card payment at the point of sale

interregional labour mobility inequality and wage convergence the objectives of the paper are to examine the determinants of interregional labour migration for german regions using the data on gross flows of labour movements across regions this is one of the few studies where data on labour migration is used there also was a wage convergence after reunification between regions of east and west germany and this to a certain extent provides an explanation for non linear relationship between wage differences among regions and migration as the study distinguishes the blue collar and white collar wage difference between regions different relationships between migration and blue and white collar workers wage differences can be assessed we also test the hypothesis whether highly skilled workers migrate to the regions where inequality is greater while less skilled workers tend to migrate to the regions where inequality is low

adoptions and orphans in the early microcomputer market in this paper we examine the development of the microcomputer market in the early 1980s cp m a widely adopted operating system was orphaned by the user and the development communities a new operating system dos and a new hardware platform the ibm pc became the predominant industry standard we examine the statistical relationship between data that reflects hardware and software sales for the competing platforms we conclude that the economic processes underlying the development of dos differed from those underlying cp m and that many of these differences related to the role of software development

the determinants of technology adoption the case of the banking firm using data on the adoption of automatic teller machines by firms in the banking industry this study examines the relationship between the decision to adopt new technology and its determinants since banking firms differ considerably in terms of the competitive environments in which they operate focusing on this one innovation in this industry allows a stronger test of the relationship between market structure and the adoption of new technology than has been previously conducted using a failure time estimation procedure we find that larger banks and banks operating in more concentrated local banking markets register a higher conditional probability of adopting this new technology all else equal we also find that other results are consistent with the underlying model and that the bank s regulatory environment shapes its adoption decision in plausible ways

network effects software provision and standardization in this paper we examine the software provision decision of software firms the provision decision by software firms determines the value and hence the market share of competing hardware technologies we show how the provision decision by software firms determines whether multiple hardware technologies are supported in equilibrium or whether there is de facto standardization with only one hardware technology supplied with software in equilibrium we show that when consumers place a high value on software variety there is a suboptimal amount of standardization by the market

how effective are rewards programs in promoting payment card usage empirical evidence card issuers have mainly relied on rewards programs as their main strategy to increase usage however there is scarce evidence on the effectiveness of these programs this paper is addressing two topics which could have important managerial and public policy implications i it estimates the impact of rewards on the use of cards and ii it quantifies their economic effects in terms of the cash substitution we find that rewards may significantly modify choice for card payments their economic impact also varies significantly across types of rewards and merchant activities additionally rewards seem to be more effective for debit cards

how does incompatibility affect prices evidence from atm s if consumers value mix and match combinations of network complements incompatibility between different sellers components should affect prices in atm markets a 1996 governance change exogenously generated such incompatibility by allowing banks to impose surcharges when other banks deposit customers use their atm s in our data incompatibility makes the relationship between deposit account pricing and own atm s more positive and makes the relationship between deposit account pricing and competitors atm s more negative the level effect on prices is positive the pattern of results is more pronounced in high population density markets where customers may care more about atm s

the demand for money financial innovation and the welfare cost of inflation an analysis with household data we use microeconomic data on households to estimate the parameters of the demand for currency derived from a generalized baumol tobin model our data set contains information on average currency deposits and other interest bearing assets the number of trips to the bank the size of withdrawals and ownership and use of atm cards we model the demand for currency accounting for adoption of new transaction technologies and the decision to hold interest bearing assets the interest rate and expenditure flow elasticities of the demand for currency are close to the theoretical values implied by standard inventory models however we find significant differences between individuals with an atm card and those without the estimates of the demand for currency allow us to calculate a measure of the welfare cost of inflation analogous to bailey s triangle but based on a rigorous microeconometric framework the welfare cost of inflation varies considerably within the population but never turns out to be very lar

investment and usage of new technologies evidence from a shared atm network when new technologies become available it is not only essential that firms have the correct investment incentives but often also that consumers make the proper usage decisions this paper studies investment and usage in a shared atm network be cause all banks coordinate their atm investment decisions there is no strategic but only a pure cost saving incentive to invest at the same time because retail fees for cash withdrawals are regulated to zero at both branches and atms consumers may not have the proper incentives to substitute their transactions from branches to the available atms we develop an empirical model of coordinated investment and cash withdrawal demand where banks choose the number of atms and consumers decide whether to withdraw cash at atms or branches we find that banks substantially underinvested in the shared atm network and thus provided too little geographic coverage this contrasts with earlier findings of strategic overinvestment in networks with partial incompatibility furthermore we find that consumer usage of the avail able atm network is too low because of the zero retail fees for cash withdrawals at branches a direct promotion of investment through subsidies or other means can improve welfare but the introduction of retail fees on cash withdrawals at branches would be more effective even if this does not encourage investment per se

consequences of debt policy in a stochastically growing monetary economy the effects of open market operations and long versus short bond financing on risk in financial markets in a stochastically growing economy are studied an increase in short bonds resulting from exchanging long bonds increases the riskiness of long bonds and raises their real rate of return an open market purchase of either long or short bonds raises the price of long bonds and lowers their risk and real return however debt policy adjustments that affect the real return to long bonds do not affect real investment or growth so that overall the welfare consequences of debt policy are neutral copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the demand of liquid assets with uncertain lumpy expenditures abstract we consider an inventory model for a liquid asset where the per period net expenditures have two components one that is frequent and small and another that is infrequent and large we give a theoretical characterization of the optimal management of liquid asset as well as of the implied observable statistics we use our characterization to interpret some aspects of households currency management in austria as well as the management of demand deposits by a large sample of italian investors

atm foreign fees and cash withdrawals abstract we evaluate the impact of foreign fees paid by consumers on their cash withdrawals at automatic teller machines henceforth atms these so called foreign fees are paid when consumers withdraw cash from atms which are not owned by their home bank we take advantage of a natural experiment whereby non linear foreign atm fees in one specific bank became suddenly applicable at one point in time we also use this experiment to evaluate the substitutions between foreign atm withdrawals and other home atm or desk withdrawals as well as with payments by card using panel data on accounts we first estimate average treatment effects on the treated before carrying on with the estimation of a simple structural model the latter procedure allows us to compute the counterfactual impacts of changing the schedule of foreign fees impacts are sizeable on bank profits and consumer welfare

competition and integration among complements and network market structure this article analyzes the competition and integration among complementary products that can be combined to create composite goods or systems the model generalizes the cournot duopoly complements model to the case in which there are multiple brands of compatible components it analyzes equilibrium prices for a variety of organizational and market structures that differ in their degree of competition and integration the model applies to a variety of product networks including automatic teller machines real estate multiple listing services and airlines crs as well as to nonnetwork markets of compatible components such as computer cpus and peripherals hardware and software and long distance and local telephone services copyright 1992 by blackwell publishing ltd

optimal inattention to the stock market inattentive agents update their information sporadically and thus respond belatedly to news we generate optimally inattentive behavior by assuming that to observe the value of his investment portfolio the consumer must pay a cost that is proportional to the portfolio s contempo raneous value it is optimal for the consumer to check his investment portfolio at equally spaced points in time consuming from a riskless trans actions account in the interim the riskless transactions account that finances consump tion guarantees that funds are never unwittingly exhausted we show that the optimal interval of time between consecutive observations of the value of the portfolio is the unique positive solution to a nonlinear equation quantitatively even a small observation cost one basis point of wealth implies a substantial eight month decision interval under conventional parameter values

out migration wealth constraints and the quality of local amenities the relation between income and migration intentions can be monotonically decreasing increasing or inverse u shaped dependent on the level of migration cost relative to wealth and if individuals are credit constrained using unique individual level data covering countries in three geographic regions sub saharan africa asia and latin america we show that migration intentions respond to individual wealth and that the pattern differs across the country groups studied in a manner compatible with the predictions of our simple model we also show that contentment with various dimensions of local amenities such as public services and security are key determinants of migration intentions

technological change and the households demand for currency abstract it is shown that accounting for technology variations across households and periods is important to obtain theoretically consistent estimates of the demand for currency an inventory model is presented where the withdrawal technology is explicitly modeled both the level and the interest rate elasticity of cash holdings depend on the withdrawal technology available to households empirical proxies for the household withdrawal technology based on the diffusion of cash withdrawal points measured at city level are used to test the model predictions on a panel of italian household data over the 1993 2004 period

mix and match compatibility with vertical product dimensions this article considers a duopoly in which each firm produces two components of a system if the components are compatible consumers may mix and match the firms components the system components and consumer tastes are assumed to differ with regard to vertical characteristics in the model one firm may be the quality leader in one or both characteristics moreover a consumer s taste for the quality of one component may be perfectly correlated with or independent of his taste for the quality of the other component it is shown that in all cases the sum of each producer s component prices is weakly higher if the components are compatible the same is true of producer profits

bank competition efficiency in europe a frontier approach abstract there are numerous ways to indicate the degree of banking competition across countries antitrust authorities rely on the structure conduct performance paradigm while academics prefer price mark ups lerner index or correlations of input costs with output prices h statistic these measures are not always strongly correlated within or across countries frontier efficiency analysis is used to devise an alternative indicator of competition and rank european countries by their dispersion from a competition frontier the frontier is determined by how well payment and other costs explain variations in loan deposit rate spread and non interest activity revenues overall differences in competition appear to be small

strategic incompatibility in atm markets abstract we test whether firms use incompatibility strategically using data from atm markets high atm fees degrade the value of competitors deposit accounts and can in principle serve as a mechanism for siphoning depositors away from competitors or for creating deposit account differentiation our empirical framework can empirically distinguish surcharging motivated by this strategic concern from surcharging that simply maximizes atm profit considered as a stand alone operation the results are consistent with such behavior by large banks but not by small banks for large banks the effect of incompatibility seems to operate through higher deposit account fees rather than increased deposit account base

shadow economies size causes and consequences using various methods the size of the shadow economy in 76 developing transition and oecd countries is estimated average size varies from 12 percent of gdp for oecd countries to 23 percent for transition countries and 39 percent for developing countries increasing taxation and social security contributions combined with rising state regulations are driving forces for the increase of the shadow economy especially in oecd countries according to some findings corruption has a positive impact on the size of the shadow economy and a growing shadow economy has a negative effect on official gdp growth

alternative government financing and stochastic endogenous growth abstract this paper addresses a stochastic endogenous model in which the stock of securities both money and bonds are required to finance the government budget we study how the expected rate of real growth the expected inflation rate and economic welfare are influenced by changes in the first and second moments of public spending the analyses will enable us to assess the merits and demerits of mixed financing case of money and bonds relative to financing one of taxes on wealth examined in grinols and turnovsky j econom dyn control 17 1993 1 and turnovsky int econom rev 34 1993 953 in addition we construct a model where government relies on a larger ratio of bonds to money to raise the necessary revenue and show how the consequences of mixed financing are affected by the policy decision of government

how people pay evidence from grocery store data abstract empirical evidence based on grocery store transaction data shows that consumer payment behavior at the point of sale is important for understanding models of money demand there are statistically significant effects of transaction costs opportunity costs and product characteristics on the choice of payment instrument which then in turn affect money demand these results emphasize the overlap between the work of empirical researchers in payment choice and theoretical modelers of monetary economics and should inform both literatures

to surcharge or not to surcharge an empirical investigation of atm pricing this paper investigates depository institutions decisions whether or not to impose surcharges direct usage fees on nondepositors who use their atms in addition to documenting patterns of surcharging we examine motives for surcharging including both direct generation of fee revenue and the potential to attract deposit customers who wish to avoid incurring surcharges at an institution s atms consistent with expectations we find that the probability of surcharging increases with both the institution s share of market atms and the time since surcharging was first allowed in the state and decreases with increasing local atm density further we find evidence consistent with the use of surcharges to attract deposit customers who are new to the local banking market but we find no evidence that larger banks use surcharges as a means to attract existing customers away from smaller local competitors

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

determinants of card payments abstractalthough the development of the card payment system allows for lowering the costs of money circulation and thereby leads to significant economic gains relatively small amount of research has been dedicated to the analysis of the determinants of this development therefore the aim of the article is to seek cross country determinants of retail card payments focusing on trust in the system the article concentrates on two econometric models one is constructed with the use of representative population survey data for poland the other is based on panel data from the eu countries in the years 2000 2012

a computation of interest equivalences for nonprice characteristics of bank products this paper seeks to price the nonprice features of british retail bank products it outlines a methodology for computing interest equivalences for a selection of characteristics estimates are obtained for a full observation set and a subset of survivor products on an efficiency frontier its main findings are that certain nonprice features are significant and there does not appear to be a strong case for separating out those products that lie on an efficiency frontier copyright 1992 by ohio state university press

why do shoppers use cash evidence from shopping diary data des etudes recentes montrent que l argent comptant demeure un mode de paiement privilegie pour les transactions de faible montant malgre la prevalence d autres moyens de paiement comme les cartes de debit et de credit pour les decideurs publics il importe de savoir si les consommateurs preferent vraiment regler en especes ou plutot si les commercants restreignent l usage de ces cartes

extensive margins and the demand for money at low interest rates we argue that the relevant monetary decision for the majority of u s households is not the fraction of assets to be held in interest bearing form but whether to hold any such assets at all we call this the decision to adopt the financial technology we show that the key variable governing the adoption decision is the product of the interest rate times the total amount of assets this implies that the interest elasticity of household money demand at low interest rates can be estimated from the variation in asset holdings in a cross section of households rather than historical interest rate variations we do so with the 1989 survey of consumer finances we find that a the elasticity of money demand is very small when the interest rate is small b the probability that a household holds any amount of interest bearing assets is positively related to the level of financial assets and c the cost of adopting financial technologies is negatively related to participation in a pension program at intere

payment choice and currency use insights from two billion retail transactions abstract using three years of transactions data from a discount retailer with thousands of stores we study payment variation along three dimensions transaction size and location weekly and monthly frequencies and longer time horizons in each case we connect empirical patterns to theories of money demand and payments we show that cross sectional and time series payment patterns are consistent with a theoretical framework in which individual consumers choose between cash and non cash payments based on a threshold transaction size and we evaluate factors that may account for the variation in threshold distributions across locations and time

using cash to monitor liquidity implications for payments currency demand and withdrawal behavior this paper provides one explanation why cash is still used for transactions despite a broad diffusion of noncash payment instruments in particular we argue that a distinctive feature of cash a glance into one s pocket gives a signal of the remaining budget and past expenses provides utility to some consumers using payment survey data we show that consumers who need to keep control over their remaining liquidity and who have elevated costs of information processing conduct a larger percentage of payments using cash withdraw less often and hold larger cash balances than other consumers

alternative approaches to evaluation in empirical microeconomics four alternative but related approaches to empirical evaluation of policy interventions are studied social experiments natural experiments matching methods and instrumental variables in each case the necessary assumptions and the data requirements are considered for estimation of a number of key parameters of interest these key parameters include the average treatment effect the treatment on the treated and the local average treatment effect some issues of implementation and interpretation are discussed drawing on the labour market programme evaluation literature

empirical evidence on payment media costs and switch points abstract this paper recovers micro cost schedules of consumers payment instruments from aggregate transaction costs we assume that only two moments of the size distribution of payments matter the number and volume of transactions these variables explain the transaction costs of currency and debit card payments with much precision for a representative 1998 sample of dutch retailers the results imply that low fixed transaction costs favor currency for small transactions while low variable transaction costs favor debit card payments for large transactions the switch point is 30 euros but including the hidden costs of currency would lower it to 13 euros

location intentions of immigrants at retirement stay return or go back and forth this article analyses the intentions of immigrants regarding their residential choice after retirement three options are investigated stay in the host country go back to the origin country and adopt a mobile strategy sharing time between the host and the origin country defined as back and forth for this purpose we analyse a cross section of non french nationals aged above 45 who are not yet retired the impacts of several potential determinants of such intentions are investigated with particular focus on the effect of the actual location of the respondents children the estimation is conducted using a multinomial logit model instrumental variable technique is used to address the issue of endogenous children s location with respect to parents location intention results suggest that the immigrants prefer to return rather than stay in the host country when their children live in the country of origin however children s location does not seem to affect the back and forth strategy with respe

size matters economies of scale in european payments processing abstract this paper investigates the existence and extent of economies of scale in the european payment processing industry it is expected that the creation of a single european payments area sepa will spur consolidations and mergers among european payment processors to more fully realize payment economies of scale we find evidence for the existence of significant economies of scale using data of eight european payment processors during the years 1990 2005 the analysis also reveals that ownership structure is an important factor to explain cost differences across european processing centers

the impact of technology adoption on market structure this paper examines the impact of bank adoptions of automated teller machines atms on subsequent levels of concentration in local banking markets the findings suggest that banks have had some success in using atms to attract customers from competitors as a consequence technology adoption s impact on market structure depends upon whether it is the larger or smaller firms within the market that adopt the new technology large firm adoptions increase concentration levels while small firm adoptions tend to reduce them the evidence also suggest that a state of structural disequilibrium seems to be characteristic of banking markets copyright 1990 by mit press

did installed base give an incumbent any measurable advantages in federal computer procurement this research examines the relative strength and significance of the status of incumbent contractor in federal computer procurement one finding as expected is that an agency is likely to acquire a system from an incumbent vendor another finding perhaps more interesting is that the in compatibility between a buyer s installed base and a potential system also influences the vendor choice a result that may be the first econometric measurement of the competitive effects of incompatibility an illustration of this thesis comes from ibm s experience new evidence shows however that ibm s apparent disadvantage with government agencies is largely due to incompatibilities in ibm s product line

an experiment on retail payments systems we study the behavioral underpinnings of adopting cash versus electronic payments in retail transactions a novel theoretical and experimental framework is developed to primarily assess the impact of sellers service fees and buyers rewards from using electronic payments buyers and sellers face a coordination problem independently choosing a payment method before trading in the experiment sellers readily adopt electronic payments but buyers do not eliminating service fees or introducing rewards significantly boosts the adoption of electronic payments hence buyers incentives play a pivotal role in the diffusion of electronic payments but monetary incentives cannot fully explain their adoption choices findings from this experiment complement empirical findings based on surveys and field data

do liquidity constraints and interest rates matter for consumer behavior evidence from credit card data this paper utilizes a unique new dataset of credit card accounts to analyze how people respond to changes in credit supply the data consist of a panel of thousands of individual credit card accounts from several different card issuers with associated credit bureau data we estimate both marginal propensities to consume mpcs out of liquidity and interest rate elasticities we also evaluate the ability of different models of consumption to rationalize our results distinguishing the permanent income hypothesis pih liquidity constraints precautionary saving and behavioral models we find that increases in credit limits generate an immediate and significant rise in debt counter to the pih the average mpc out of liquidity ddebt dlimit ranges between 10 14 the mpc is much larger for people starting near their limits consistent with binding liquidity constraints however the mpc is significant even for people starting well below their limit we show this response is consistent with buffer stock models of precautionary saving nonetheless there are other results that conventional models cannot easily explain e g why so many people are borrowing on their credit cards and simultaneously holding low yielding assets unlike most other studies we also find strong effects from changes in account specific interest rates the long run elasticity of debt to the interest rate is approximately 1 3 less than half of this elasticity represents balance shifting across cards with most reflecting net changes in total borrowing the elasticity is larger for decreases in interest rates than for increases which can explain the widespread use of temporary promotional rates the elasticity is smaller for people starting near their credit limits again consistent with liquidity constraints

demand for cash with intra period endogenous consumption abstract we extend the literature on the demand for money by relaxing the assumption of a constant rate of consumption although total consumption is still fixed over the period agents can choose more than one rate of consumption and cash depletion in the period to minimize the cost of money management consistent with empirical evidence we find that agents do not smooth intra period consumption instead their rate of consumption will be positively related to their cash position this positive correlation depends on the volatility of the consumption process

money and interest in a cash in advance economy the authors analyze an aggregative general equilibrium model in which the use of money is motivated by a cash in advance constraint applied to purchases of a subset of consumption goods the system is subject to both real and monetary shocks which are economy wide and observed by all they develop methods for verifying the existence of characterizing and explicitly calculating equilibria copyright 1987 by the econometric society

how different are the british in their willingness to move evidence from international social survey data drinkwater s and ingram p how different are the british in their willingness to move evidence from international social survey data regional studies this paper analyses people s willingness to move using data from the 1995 british social attitudes survey and international social survey programme the personal characteristics and sub regional indicators that are important in explaining the willingness to move within britain are identified it is also found that the willingness to move is only higher in a few other countries including the usa the equivalent desire to move is found to be much lower in eastern european countries and in several other european union member states compositional effects such as age and education are generally important in explaining differences in attitudes towards migration in comparison with other western economies however structural effects such as institutions history and culture tend to play a more dominant role in explaining differences compared with countries

semiparametric analysis of german east west migration intentions facts and theory east west migration in germany peaked at the beginning of the 1990s although the average wage gap between eastern and western germany continues to average about 25 we analyse the propensity to migrate using microdata from the german socioeconomic panel fitting a parametric generalized linear model glm yields non linear residual behavior this finding is not compatible with classical marshallian theory of migration and motivates the semiparametric analysis we estimate a generalized partial linear model gplm where some components of the index of explanatory variables enter non parametrically we find the estimate of the non parametric influence in concordance with a number of alternative migration theories including the recently proposed option value of waiting theory 1998 john wiley sons ltd

taxation risk taking and growth a continuous time stochastic general equilibrium analysis with labor leisure choice abstract this paper investigates the equilibrium relationship between taxation portfolio choice risk taking and capital accumulation specifically it examines how taxes affect risk taking and capital accumulation we extend the existing literature by relaxing two crucial assumptions in modelling risk taking behavior i that the investment opportunity set is fixed and ii that there is no distinction between attitudes towards risk and behavior towards intertemporal substitution we extend the investment opportunity set of individuals through optimally determined human capital and distinguish intertemporal substitution from attitudes towards risk via a recursive utility function in the presence of these extensions the paper successfully derives a closed form solution to the stochastic growth model with stochastic wage income

payment transactions instruments and systems a survey the payments literature ranges from theoretical general equilibrium models to practical payment issues related to the day to day operation of various national networks for the transfer of money it is an area where economic theory and institutional structure are often closely intertwined and it is currently undergoing significant change shifting from costly paper based systems to technologically advanced electronic payments the extant literature is surveyed here with the aim of integrating the various strands of payment research which have been largely pursued separately in addition we present newly available data to illustrate and investigate a number of underdeveloped areas in this literature 1998 elsevier science b v all rights reserved

competing compatibility standards and network externalities in the pc software market this paper is an empirical study of the value of four file compatibility standards for transferring data in the personal computer software market the results are that only the lotus file compatibility standard is significant in explaining price variations and it is significant in both the spreadsheet and database management system markets this supports the hypothesis that the personal computer software market exhibits complementary network externalities copyright 1995 by mit press

network effects without network externalities abstract the network externalities hypothesis postulates that consumers prefer to purchase brands which are bought by more consumers compared with brands with a low market share in this paper we show that increasing returns to scale in the production of complementary products can substitute for the network externalities assumption we develop a model for the computer industry in which the production of complementary software requires a large fixed cost of development relative to the cost of duplicating and marketing the software the increasing returns to scale in the production of software yields consumers behavior which is very similar to consumers who have preferences exhibiting network externalities

effects of payment mechanism on spending behavior the role of rehearsal and immediacy of payments past expenses have been shown to influence future spending behavior by depleting available budgets however a prerequisite for this relationship is the accurate recall of past payments and the experiencing of the full aversive impact associated with them this article shows that the use of different payment mechanisms influences both these factors and hence moderates the effects of past payments on future spending specifically past payments strongly reduce purchase intention when the payment mechanism requires the consumer to write down the amount paid rehearsal and when the consumer s wealth is depleted immediately rather than with a delay immediacy two experiments show support for the proposed theoretical framework

homogeneity and the transactions demand for money the paper presents the properties of money demand implied by the frenkel jovanovic 1980 inventory model without approximation the money demand function is implicitly defined by the first order condition of the model from the implicit function we show that the elasticities of money demand satisfy a set of homogeneity conditions we also show that increasing transactions cost increases the cash flow elasticity the interest elasticity in absolute value and the uncertainty elasticity but decreases the transactions cost elasticity if the ratio of cash flow uncertainty to the transactions variable is small then the interest elasticity is greater than 1 2 in contrast it lies between 71 and 1 2 when the approximation method is applied

the effect of redistribution on migration evidence from the israeli kibbutz this paper tests a key theoretical prediction of public finance that local redistribution induces sorting of the population so that less productive individuals are located in communities with more redistribution specifically i use a longitudinal data set to test whether and to what extent the intensive redistribution practiced by israeli kibbutzim encourages exit of more productive individuals and entry of less productive ones the findings support the theoretical prediction kibbutz leavers are more skilled than both stayers and other rural migrants and they earn higher wages upon exit than observably similar city natives and other migrants in contrast individuals who earn lower wages in the city are more likely to enter a kibbutz but they are not more likely to move to other rural areas these findings also support borjas hypothesis that migrants self selection depends on the difference in returns to skills between the origin and the destination

credit cards as spending facilitating stimuli a conditioning interpretation four experiments and one study were conducted to test the hypothesis that stimuli associated with spending can elicit spending responses in all experiments credit card stimuli were either present or absent in situations in which subjects were given an opportunity to spend credit card stimuli directed spending such that the probability speed or magnitude of spending was enhanced in the presence of credit card cues a conditioning explanation was used to interpret the results

paying for atm usage good for consumers bad for banks we compare the effects of the three most common atm pricing regimes on consumers welfare and banks profits we consider cases where the atm usage is free where customers pay a foreign fee to their bank and where they pay a foreign fee and a surcharge paradoxically when banks set an additional fee profits are decreased besides consumers welfare is higher when atm usage is not free surcharges enhance atm deployment so that consumers prefer paying surcharges when reaching cash is costly our results also shed light on the australian reform that consists in removing the interchange fee

the failure of competition in the credit card market the bank credit card market containing 4 000 firms and lacking regulatory barriers casually appears to be a hospitable environment for the model of perfect competition nevertheless this article reports that credit card interest rates have been exceptionally sticky relative to the cost of funds moreover major credit card issuers have persistently earned from three to five times the ordinary rate of return in banking during the periods 1983 88 the failure of the competitive model appears to be partly attributable to consumers making credit card choices without taking account of the very high probability that they will pay interest on their outstanding balances copyright 1991 by american economic association

endogenous growth cycles current explanations why a growing economy necessarily goes through periods of high and low growth predict countercyclical r d investment as this is very controversial from an empirical perspective a stochastic poisson model of endogenous growth cycles is presented where the determinants of the cyclical behaviour of r d investment are analytically studied providing an explicit expression for the expected length of a cycle shows that high frequency fluctuations can indeed be understood by this approach it is also shown how small technological improvements translate into large aggregate fluctuations

sticky prices and costly credit we develop a theory of money and credit as competing payment instruments then put it to work in applications agents use cash and credit because the former latter is subject to the inflation tax transaction costs frictions that make the choice of payment method interesting also imply equilibrium price dispersion we derive closed form solutions for money demand and show how to simultaneously account for the price change facts cash credit shares in micro data and money interest correlations in macro data the effects of inflation on welfare price dispersion and markups are discussed as are nonstationary equilibria with dynamics in the price distribution

does more schooling make you run for the border evidence from post independence kosovo abstract does an extra year of schooling augment one s propensity to migrate in a naive regression which does not account for the potential reverse causality and omitted variables the coefficient of education is likely to be biased to deal with the problems of endogeneity we use parental education as an instrument for own education the data come from a survey on preparedness to emigrate from kosovo carried out in the summer of 2008 two stage residual inclusion multinomial probit results suggest that an extra year of education increases the probability of taking concrete steps to realise migration intentions by up to 9 percentage points

incentives at the counter an empirical analysis of surcharging card payments and payment behaviour in the netherlands in card payment systems no surcharge rules prohibit merchants from charging consumers extra for card payments however such rules are prohibited in the netherlands dutch retailers are allowed to surcharge consumers for debit card use this setting permits an empirical analysis of the impact of surcharging card payments on merchant acceptance and consumer payment choice based on consumer and retailer survey data our analysis shows that surcharging steers consumers away from using debit cards towards cash half of the observed difference in debit card payment shares across retailers can be explained by this surcharge effect removing debit card surcharges may induce cost savings of more than eur 50 million in the long run

the caring hand that cripples the east german labor market after reunification abstract the caring hand that cripples the east german labour market after reunification the east german labour market has hardly made any progress since german reunification despite massive migration flows and support from the west we argue that east germany is in trouble precisely because of the support it has received this paper explores the phenomenon of the caring hand that cripples arising from bargaining by proxy the adoption of the west german welfare system and the associated employment persistence even the steady decrease of labour cost normalized by productivity since the beginning of the 1990s did not help to kick start the east we suggest that labour force participants fell into traps concerning low skills ageing of the workforce labour saving capital and skills capital underutilization and unemployment arising from the decline of the tradeable sector jel classification e24 j3 and p2 keywords german unification labour market traps and labour markets dennis j snower kiel institute for the world economy dusternbrooker weg 120 24105 kiel germany tel 49 431 8814 235 fax 49 431 8814 501 email dennis snower ifw kiel de

production technologies in stochastic continuous time models abstract properties of dynamic stochastic general equilibrium models can be revealed by either using numerical solutions or qualitative analysis very precise and intuition building results are obtained by working with models which provide closed form solutions closed form solutions are known for a large class of models some of which however have some undesirable features such as potentially negative output this paper offers closed form solutions for models which are just as tractable but do not suffer from these shortcomings

3rd of tha month do social security recipients smooth consumption between checks this paper examines the response of consumption expenditures to the monthly receipt of social security checks since the amount and arrival date of these checks are known to the recipients the basic life cycle permanent income hypothesis lcpih predicts that consumption should not respond to the receipt of these checks using daily diary data from the consumer expenditure survey this paper finds evidence that both the dollar amount and probability of expenditures increase immediately following the receipt of this check most relevant to testing the lcpih categories of instantaneous consumption expenditure such as food away from home increase on the check arrival date the response is found primarily amongst households for whom social security is the primary source of income however the magnitude of the estimated responses are relatively small and do not suggest that the utility losses are large from this non smoothing behavior this abstract was borrowed from another version of this item