Household debt, automatic bill payments and inattention: Theory and evidence

Carlos Delgado (), Jorge A. Muñoz Mendoza, Sandra M. Sepúlveda Yelpo, Carmen L. Veloso Ramos and Rodrigo A. Fuentes-Solís

Journal of Economic Psychology, 2021, vol. 85, issue C

Abstract: In this article we analyze the impact of automatic bill payment (ABP) on household debt. We present a theoretical intertemporal consumption model that shows an inattention effect when individuals subscribe an ABP for their debts. This effect causes a higher level of indebtedness (beyond optimal) and, therefore, well-being loss. Furthermore, we empirically test this theory for Chile, an emerging economy. We estimate a Tobit-Probit conditional mixed process (CMP) model, using data from the Central Bank of Chile’s Household Financial Survey (HFS). The results confirm the existence of a positive and significant effect of the use of ABP on the financial burden of households.

Keywords: Automatic bill payment; Household decision making; Indebtedness; Inattention; Intertemporal consumption (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:joepsy:v:85:y:2021:i:c:s0167487021000234

DOI: 10.1016/j.joep.2021.102385

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