Three essays in the microeconomics of savings and consumption

This dissertation, "Three Essays in the Microeconomics of Savings and Consumption", is comprised of three chapters which together, focus on how low-income communities and households living in the developing world make important savings and consumption decisions. The first chapter, titled "Currency Depreciations and Savings Behavior: Evidence from Household Deposits in Armenia", is co-authored with Diego Jimenez-Hernandez and Aleksandr Shirkhanyan. In this chapter, I study how households living in financially dollarized economies make currency and savings decisions following a significant currency depreciation. Those living in the developing world often face the problem of how to safely store their assets when the value of their local currency is unstable. This instability leads to several complicated decisions households must make, such as how much to save and which currencies to save in. These choices are especially important for households during periods of macroeconomic volatility such as currency depreciations. This chapter studies how households make such savings decisions following a large currency depreciation in Armenia. We exploit the unique structure of Armenian financial instruments, which generates quasi-random variation in which savers are nudged into paying attention to the depreciation. We then study how this random difference in initial attention affects the future savings choices that individuals make. Using a differences-in-differences design, we find that individuals who received a nudge to pay attention to the currency depreciation significantly reduced their total savings, held their savings for shorter periods of time, and chose to save their assets in USD. We find that these effects are strongest for individuals who predominantly saved their in the domestic currency and individuals who are less financially sophisticated. We also find that while some of the differences in savings decisions are temporary, others persist long after the original depreciation event. The second chapter, "Are High-Interest Loans Predatory? Theory and Evidence from Payday Lending", evaluates the welfare impacts of payday loans and payday lending regulation. It is often argued that consumer lending regulations can increase welfare, because high-interest loans cause "debt traps" where people borrow more than they expect or would like to in the long run. We test this using an experiment with a large payday lender. While the most inexperienced quartile of borrowers underestimate their likelihood of future borrowing, the more experienced three quartiles predict correctly on average. This finding contrasts sharply with priors we elicited from 103 payday lending and behavioral economics experts, who believed that the average borrower would be highly overoptimistic about getting out of debt. Borrowers are willing to pay a significant premium for an experimental incentive to avoid future borrowing, implying that they perceive themselves to be time-inconsistent. We combine these data with a novel sufficient statistic-based identification strategy to estimate a a structural model of time preferences and beliefs. Using our estimated parameters, we carry out a behavioral welfare evaluation of common payday lending regulations. In our model, payday loan bans unambiguously reduce welfare, and limits on repeat borrowing generate at best small welfare gains. The last chapter, "Food Labeling: Effects on Supply and Demand", studies front of package labeling regulations. Front-of-package labeling (FoPL) regulations are an increasingly popular policy used to combat obesity. FoPLs place warning stickers on food products which are deemed to be unhealthy. However, the welfare consequences of FoPL regulations are ambiguous; while firms may produce healthier foods to avoid receiving a label, they may also increase prices due to higher production costs and increased product differentiation. We study how FoPL regulations impact consumer surplus and nutritional intake in the context of Chile, which passed a nationwide regulation mandating FoPL stickers on all processed food products which surpass a threshold level of critical nutrients such as calories or sugar. Combining detailed scanner-level data from Walmart and field-collected data on products' nutritional content and consumers beliefs, we find a decrease in sugar and caloric intake by 9% and 7% respectively. We find that consumers shifted demand from labeled to unlabeled products, and this substitution is highest for products which consumers had miscalibrated nutritional beliefs about. On the supply side, we find firms bunch the nutritional composition of their products at the regulatory thresholds to avoid receiving a label. We develop and estimate a model of supply and demand for food and nutrients, and find that accounting for strategic responses from firms increases the effect of FoPL regulations on nutritional intake by 20 to 30 percent. Finally, we compare FoPL with sin taxes

Keywords: Economics.
Advisor: Abramitzky Ran
Allcott Hunt
Gentzkow Matthew