“I’ll Have What She’s Having”: Neighborhood Social Interactions Lead to Policy Spillovers

Avni Shah and W. Ben McCartney

Journal of the Association for Consumer Research, 2023, vol. 8, issue 4, 403 - 415

Abstract: Policies often have effects on groups outside those directly targeted by the intervention. We test whether hyperlocal spillovers amplified the intended effects of a program designed to encourage households to refinance. We use a nearest neighbor research design to analyze borrowers’ refinancing decisions following a large increase to the conforming loan limit. We find that households with mortgages that qualified under the previous conforming loan limit as well as the new limit (i.e., always-conforming households) were more likely to refinance their mortgage if they lived on the same residential block as at least one household that newly qualified following the conforming loan limit increase. Moreover, refinancing rates of always-conforming households were especially affected when their newly conforming neighbors also refinanced. We use a difference-in-differences research design to identify positive spillover effects: Always-conformers with at least one newly conforming neighbor were 55% more likely to refinance relative to those with no newly conforming neighbors. Consistent with a word-of-mouth mechanism, the social influence effect of slightly farther away neighbors increases with neighborhood walkability. We conclude that neighbor social networks—and the built environment in which they interact—can affect households’ financial decision making and induce policy spillovers.

Date: 2023
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