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Borrowing on the Wrong Credit Card? Evidence from Mexico

Alejandro Ponce, Enrique Seira and Guillermo Zamarripa

American Economic Review, 2017, vol. 107, issue 4, 1335-61

Abstract: We establish new facts about the way consumers allocate debt among their credit cards using data for a representative sample of cardholders in Mexico. We find that relative prices are weak predictors of the allocation of debt, purchases, and payments. Consumers allocate a large fraction of their debt to high-interest cards, incurring a cost of 31 percent above the minimum. Using an experiment, we find that consumers do not substitute in the price margin, although they respond to salient temporary low-interest offers. We conclude that limited attention and mental accounting best rationalize our results and discuss implications for the market.

JEL-codes: D14 G21 O12 O16 (search for similar items in EconPapers)
Date: 2017
Note: DOI: 10.1257/aer.20120273
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Working Paper: Borrowing on the Wrong Credit Card: Evidence from Mexico (2014) Downloads
Working Paper: Borrowing on the Wrong Credit Card:Evidence from Mexico (2014) Downloads
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