cash by any other name evidence on labelling from the uk winter fuel payment standard economic theory implies that the labelling of cash transfers or cash equivalents e g child benefits food stamps should have no effect on spending patterns the empirical literature to date does not contradict this proposition we study the uk winter fuel payment wfp a cash transfer to older households exploiting sharp eligibility criteria in a regression discontinuity design we find robust evidence of a behavioural effect of the labelling on average households spend 41 of the wfp on fuel if the payment was treated as cash we would expect households to spend approximately 3 of the payment on fuel

the policy impact of new rules for loan participation on credit union returns abstract in recent years credit unions have increasingly purchased loan participation agreements in order to diversify their loan portfolios and manage loan growth responding to high charge off rates for these loans and concern for systemic risk the national credit union administration imposed in 2013 new rules on federally insured credit unions that limited the purchase of loan participations from a single originator to the greater of 5 million or 100 of net worth this study uses a difference in difference framework to examine the effect the policy had on returns as a result of the policy change credit unions with a high share of net worth in loan participations earned on average a return on assets 47 basis points less than their counterparts further we find evidence that suggests these lower returns were driven by a decline in participation loans with recourse provisions liquidity issues and relatively higher interest expenses

does risk aversion or attraction depend on income an experiment does risk attitude aversion or attraction vary with the level of the income at risk about half of our subjects chose to insure all levels whereas another half chose instead not to insure low levels but to insure high levels

does consumer irrationality trump consumer sovereignty scholars working on the border of economics and psychology have documented many contexts in which individual decision making is unreliable and might be improved by paternalistic interventions against this mounting body of negative evidence economists default belief in consumer sovereignty has been motivated primarily by theory rather than evidence the goal of the present study is to see whether there is direct evidence supporting economists faith in consumer sovereignty in a simple context we address this question by presenting direct evidence that consumers own purchases generate between 10 and 18 more value per dollar spent than items received as gifts

risk based pricing of interest rates for consumer loans abstract by focusing on observable default risk s role in loan terms and the subsequent consequences for household behavior this paper shows that lenders increasingly used risk based pricing of interest rates in consumer loan markets during the mid 1990s it tests three resulting predictions first the premium paid per unit of risk should have increased over this period second debt levels should have reacted accordingly third fewer high risk households should have been denied credit further contributing to the interest rate spread between the highest and lowest risk borrowers for people obtaining loans the premium paid per unit of risk did indeed become significantly larger after the mid 1990s for example for a 0 01 increase in the probability of bankruptcy the corresponding interest rate increase tripled for first mortgages doubled for automobile loans and rose nearly six fold for second mortgages additionally changes in borrowing levels and debt access reflected these new pricing practices particularly for secured debt borrowing increased most for the low risk households who saw their relative borrowing costs fall furthermore while very high risk households gained expanded access to credit the increases in their risk premiums implied that their borrowing as a whole either rose less or sometimes fell

the deadweight loss of christmas reply we welcome bradley j ruffle and orit tykocinski s 1999 attempt to reconcile the difference in findings between our paper solnick and hemenway 1996 and joel waldfogel s 1993 in both studies subjects were asked to estimate the cost and the value to them of gifts they had received waldfogel found that gift recipients typically valued their gifts at only 87 percent of their estimated cost to the givers by contrast our sample of adults from train stations and airports and from faculty staff and graduate students at harvard reported valuing their gifts at more than twice the estimated cost ruffle and tykocinski examine the wording of the question used to elicit the valuation of the gift waldfogel s subjects were economics students hence he could ask them directly what amount of cash would make them indifferent between the gift and a cash alternative since we wanted to question people without economics training we asked respondents to name the amount of money that would make them equally happy as receiving the gift ruffle and tykocinski find that the change from waldfogel s wording to ours results in a 15to 20 percent increase in estimated value while leaving accompanying cost estimates unchanged the wording of the question clearly matters but to pose a question that only those with training in economics can answer limits the scope of inquiry in the study by ruffle and tykocinski 10 percent of the psychology students raised their hands to ask for a definition of indifferent we wonder how this concept was explained to them what those who asked and those who did not ask made of the term and what set of emotions might have been activated had waldfogel used our question rather than finding any deadweight loss a yield of 87 percent he would have reported gifts being valued very close to cost 100 0 or 104 4 percent thus ruffle and tykocinski take us partway towards an understanding of the difference in our findings and waldfogel s yet a wide gulf remains ruffle and tykocinski reject our claim that sample selection may be largely responsible for the difference between our results and waldfogel s it does appear that results do not vary a great deal with the type of undergraduate questioned whether a student is enrolled in a psychology or an economics class or in a more or less prestigious institution but the real issue of sample selection has not been adequately addressed ours remains the only study to use adults living independently as subjects we note that ruffle and tykocinski s subjects performed poorly in estimating costs for example psychology students estimated the cost of the mask at 603 shekels and economics students at 375 shekels actual retail price was 800 shekels this incidental finding supports our belief that college students may not be full fledged participants in many market or gift exchange processes it is certainly possible that the average gain in gift exchange may be lower than the 214 percent measured in our survey but we remain convinced that even examining solely the material value to the recipient gift giving can and often does result in a gain rather than a deadweight loss

are credit unions too small abstract u s credit unions serve 93 million members hold 10 of u s savings deposits and make 13 2 of all nonrevolving consumer loans since 1985 the share of u s depository institution asse

an update on economies of scale in credit unions when employing the benston bell murphy cost specification most studies on economies of scale in financial institutions have consistently found small yet significant economies however when a similar approach on credit unions was used the results were conflicting this paper through the use of a different methodological and statistical approach provides additional evidence on the existence of economies of scale in credit unions

markets gift cards the mobil oil company introduced the first retail gift card that recorded value on a magnetic strip in 1995 in under a decade such gift cards replaced apparel as the number one item sold during the christmas season this study will discuss the reasons for the strong surge in the gift card market it will then consider the value of gift cards as an intermediate option between two alternatives purchasing a physical gift which could possibly be returned or exchanged versus giving cash empirical data on the resale price of gift cards from an internet auction website provide information on the value that recipients place on gift cards suggesting that the difference between the cost of a gift card to the giver and its value to the recipient is substantial although perhaps not quite as large as the parallel gap involved in physical gifts

gifts as economic signals and social symbols gift giving has often puzzled economists especially because efficient gifts like cash or giving exactly what a person asks for seem crass or inappropriate it is shown in a formal game theoretic model that gifts serve as signals of a person s intentions about future investment in a relationship and inefficient gifts can be better signals other explanations for the inefficiency of gift giving are advanced and some stylized facts about gift giving practices are described many of which are consistent with the signaling view of gifts

mental budgeting and consumer decisions consumers often set budgets for categories of expenses e g entertainment and track expenses against their budget because budgets cannot perfectly anticipate consumption opportunities people may earmark too much or too little money for a particular category this leads them to overconsume or underconsume goods in that category the results of three studies suggest that consumers do indeed set budgets and that budgeting may lead to underconsumption to show that consumers track expenses the studies demonstrate that budgeting effects are larger for purchases that are highly typical of their category such purchases reduce the amount people spend in a category and block the purchase of other typical items the studies control for satiation and income effects thus budgeting adds predictive power to standard economic consumer theory

estimating the value of an in kind transfer the case of food stamps the value of one in kind transfer food stamps is estimated by evaluating the experience of an actual conversion from stamps to cash in puerto rico in 1982 the evidence indicates that the cashout of the stamps had no detectable influence on food expenditures the explanation partly lies in the distribution of expenditures for the stamps were inframarginal for most recipients however some evidence indicates that trafficking in stamps was widespread as well including indirect evidence from estimation of the piecewise linear constraint model copyright 1989 by the econometric society

risk aversion and the winner s curse this article analyzes an auction in which bidders see independent components of a common prize value the nash equilibrium for two rational bidders is shown to be independent of risk attitudes the information structure allows explicit calculation of an alternative equilibrium in which naive bidders do not correctly discount the value of the prize contingent on winning and thus they suffer the winner s curse subjects in a laboratory experiment clearly fall prey to the winner s curse the data conform most closely to the predictions of the naive model moreover the level of risk aversion implied by fitting the naive model is similar to an independent risk aversion measure obtained in a separate private value bidding exercise

the competitive role of credit unions in small local financial services markets although there is a considerable literature on the role of market structure in banking markets no attention has been given to the impact of the competitive discipline provided by credit unions on consumer credit rates offered by banks after presenting a theoretical framework for understanding the impact credit unions should be expected to have this article analyzes a pooled cross sectional time series sample with roughly 1 000 observations on relatively small united states markets with the focus on explaining bank rates for two types of consumer loans results confirm the previously observed role of market structure and suggest a significant role for credit unions in disciplining the exercise of market power by banks

contract pricing in consumer credit markets we analyze subprime consumer lending and the role played by down payment requirements in screening high risk borrowers and limiting defaults to do this we develop an empirical model of the demand for financed purchases that incorporates both adverse selection and repayment incentives we estimate the model using detailed transaction level data on subprime auto loans we show how different elements of loan contracts affect the quality of the borrower pool and subsequent loan performance we also evaluate the returns to credit scoring that allows sellers to customize financing terms to individual applicants our approach shows how standard econometric tools for analyzing demand and supply under imperfect competition extend to settings in which firms care about the identity of their customers and their postpurchase behavior

credit union loan rate determinants in the united states credit union participation in the consumer lending market continues to grow as an increasing number of consumers and small businesses become members and open accounts this study investigates the d

the labeling effect of a child benefit system child benefit systems exist in many countries while they show a lot of differences in terms of eligibility rules amounts involved and implementation tax deduction tax credit or direct benefit the common motivation for their existence is to increase children s welfare in the dutch child benefit system the case i focus on in this paperone of the parents usually the mother is entitled to an untaxed child benefit amount which only depends on the child s age and the number of children in the household thus child support does not depend on household income marital status or labor market status as a result child benefit is exogenous to the household given the presence of children this is in contrast with the situation in many other countries including germany france the united kingdom and the united states where government provided child support is partly means tested see jonathan bradshaw et al 1993 in the netherlands child benefit is generally a nonnegligible addition to the household income the median share of child benefit in the total net income of households with children is 8 percent on the national level expenditures on child benefits amount to 1 2 percent of gnp the use of the child benefit is completely at the discretion of the parent there are no legal requirements that a certain amount be spent on particular goods or services nor does the government provide any guidelines regarding expenditure on children a policy question that arises is to what extent children benefit from child benefits standard microeconomic demand theory allows no role for effects of the composition of income given the fungibility of income sources it is only the sum of income components that is relevant in explaining expenditure patterns thus within that framework the answer would be that the marginal propensity to consume child goods from one guilder of child benefits is no different than from one guilder of any other income source in the more general class of gametheoretic models of household behavior however the composition of household income will generally affect expenditure patterns see e g shelly j lundberg and robert a pollak 1993 and martin browning et al 1994 if fathers and mothers have different preferences and mothers have control over child benefits the effect of child benefits on expenditures will differ from the effect of other income sources lundberg et al 1997 provide empirical evidence showing that a transfer of control over child benefits from fathers to mothers in the united kingdom due to a change in legislation resulted in a significant increase in expenditures on child clothing daniela del boca and christopher j flinn 1994 have analyzed the effect of income composition on expenditure decisions of divorced mothers they find that the coefficients associated with child support and alimony income differ from those for other income in engel curves for expenditures on childspecific goods their results can be explained in terms of a noncooperative nash model in which the child support transfer decisions of the noncustodial father and the expenditure decisions of the mother are determined simultaneously in contrast to del boca and flinn s analysis in which child support is a decision variable the present paper focuses on the possible differential effect of government provided child support which is truly exogenous in this paper i analyze the effects of child benefits on expenditures by running regressions in which child benefit enters as a separate explanatory variable the enipirical analysis is based on a time series of 17 cross section consumer expenditure surveys in the netherlands covering the period 1978 through 1994 it is important to note that in a single cross section it department of economics university of groningen p o b 800 9700 av groningen the netherlands e mail p kooreman eco rug nl i am indebted to two anonymous referees for constructive comments helpful comments were also provided by rob alessie maarten allers chris bojke werner de bondt bert schoonbeek and tom wansbeek i thank vincent linderhof for organizing the data financial support was provided by the dutch organization for scientific research nwo homes project grant

broad and narrow bracketing in gift certificate spending abstract we survey 1050 consumers who have just redeemed one or more open loop gift certificates to learn whether they view gift certificate income cash gifts and non gift income as substitutes we find that the majority 83 of recipients spend the certificates in the same way as cash the other respondents 17 bought an item they would not have bought otherwise but adjustments in their shopping pattern do not seem to result from constraints in redeeming the certificates 80 of all respondents in this group says they have used the certificate to buy an item they really love to have while inconsistent with standard microeconomic demand theory this behavior can be explained by narrow bracketing in spending gift certificates these consumers consider a limited choice set of nice personal items our data show that females are more likely to narrow bracket gift certificate income and that positive reciprocity towards the giver induces narrow bracketing in case the giver is a household member who suggests to buy a particular item using the certificate previous studies have found that both giving in kind gifts waldfogel 1993 as giving gift cards offenberg 2007 entail a welfare loss of 10 30 when compared to giving cash we find that the welfare effects of open loop gift certificates among users are limited the consumption of broad bracketing consumers is unaffected and narrow bracketing consumers seem to value the possibility to separate gift certificate income from other income sources

the deadweight loss of christmas when economists comment on holiday gift giving it is usually to condone the healthy effect of spending on the macroeconomy however an important feature of gift giving is that consumption choices are made by someone other than the final consumer a potentially important microeconomic aspect of gift giving is that gifts may be mismatched with the recipients preferences in the standard microeconomic framework of consumer choice the best a gift giver can do with say 10 is to duplicate the choice that the recipient would have made while it is possible for a giver to choose a gift which the recipient ultimately values above its price for example if the recipient is not perfectly informed it is more likely that the gift will leave the recipient worse off than if she had made her own consumption choice with an equal amount of cash in short gift giving is a potential source of deadweight loss this paper gives estimates of the deadweight loss of holiday gift giving based on surveys given to yale undergraduates i find that holiday gift giving destroys between 10 percent and a third of the value of gifts while these recipients may be unrepresentative of the u s population their gifts are not necessarily unrepresentative holiday expenditures average 40 billion per year implying that a conservative estimate of the deadweight loss of christmas is a tenth as large as estimates of the deadweight loss of income taxation i also explore how deadweight loss and the tendency to give cash gifts vary with the relationship and age difference between giver and recipient i find that gifts from friends and significant others are most efficient while noncash gifts from members of the extended family are least efficient and destroy a third of their value i develop a simple expected utility model to explain the decision to give cash as opposed to in kind gifts the data are consistent with the model cash gifts are most common from the sorts of givers whose noncash gifts have the lowest expected value to recipients given their cost and high variability in recipient valuation

venture theory a model of decision weights several theories suggest that people replace probabilities by decision weights when evaluating risky outcomes this paper proposes a model called venture theory of how people assess decision weights it is assumed that people first anchor on a stated probability and then adjust this by mentally simulating other possible values the amount of mental simulation is affected by the absolute size of payoffs the extent to which the anchor deviates from the extremes of 0 and 1 and the level of perceived ambiguity concerning the relevant probability the net effect of the adjustment i e up or down vis i vis the anchor reflects the relative weight given in imagination to values above as opposed to below the anchor this in turn is taken to be a function of both individual and situational variables and in particular the sign and size of payoffs cognitive and motivational factors therefore both play important roles in determining decision weights assuming that people evaluate outcomes by a prospect theory value function kahneman and tversky 1979 and are cautious in the face of risk fourteen predictions are derived concerning attitudes toward risk and ambiguity as functions of different levels of payoffs and probabilities the results of three experiments are reported whereas only a subset of the model s predictions can be tested in experiment 1 all fourteen are tested in experiments 2 and 3 using hypothetical and real payoffs respectively several of the model s predictions are not supported in experiment 2 but almost all are validated in experiments 1 and 3 the failures relate to the exact nature of probability payoff interactions in attitudes toward risk and ambiguity for losses the theory and results are discussed in relation to other experimental evidence future tests of the theory alternative models of risky choice and implications of venture theory for explaining further phenomena

the neglect of correlation in allocation decisions we study the effect of variation in correlation on investment decision in an experimental two asset application comparison of allocations across problems suggests that subjects neglect probabilistic information on the joint distribution of returns and base their allocations on the observed return levels for the two assets when asked to predict future returns subjects try to replicate the historical distribution thereby falling into the probability matching bias predictions drastically vary when correlations become negative while allocations are not significantly affected by changes in sign of correlation the observed allocation patterns contradict the predictions of standard models of choice the inconsistency is attributed to common behavioral bias in financial decision field implications of the results are discussed