Why use debit instead of credit?
Subtitle: consumer choice in a trillion-dollar market
By: Jonathan Zinman.
Contributors: Federal Reserve Bank of New York.
Series: Staff reports ;; no. 191; Staff reports (Federal Reserve Bank of New York : Online) ;; no. 191.
Publisher: Federal Reserve Bank of New York
Published: 2004
Place of publication: [New York, N.Y.]
Language: eng
Format: Electronic resource
Subjects: Debit cards -- United States.; Credit cards -- United States.; Consumer behavior -- United States.; Consumer behavior -- Mathematical models.
Description: "Debit cards are overtaking credit cards as the most prevalent form of electronic payment at the point of sale, yet the determinants of a ubiquitous consumer choice--"debit or credit?"--have received relatively little scrutiny.  Several stylized facts suggest that debit-card use is driven by behavioral factors.  The popular view is that debit-card use presents a puzzle for canonical economic models.  However, we should not overlook standard cost-based motives for using debit cards.  Principally, the 50 percent of debit-card users who revolve credit-card balances would pay interest to charge purchases on the margin and hence might rationally choose to use debit rather than credit to minimize transaction costs.  Debit-card use might also be rational for consumers lacking access to a credit card or facing a binding credit limit.  I document robust effects of these types of credit-card use on debit use and show that such effects are consistent with a canonical model of consumer choice.  This paper also shows, however, that it is difficult to distinguish sharply between canonical and behavioral motives for debit-card use in publicly available data.  More generally, I develop analytical frameworks for testing competing canonical and behavioral models and find evidence consistent with important roles for both pecuniary and psychological motives"--Federal Reserve Bank of New York web site.
Notes: Includes bibliographical references.
Title from PDF file as viewed on 1/12/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.