Borrowing on the Wrong Credit Card:Evidence from Mexico

Alejandro Ponce, Enrique Seira (enrique.seira@itam.mx) and Guillermo Zamarripa
Additional contact information
Enrique Seira: Centro de Investigación Económica (CIE), Instituto Tecnológico Autónomo de México (ITAM)
Guillermo Zamarripa: FUNDEF, México

No 1406, Working Papers from Centro de Investigacion Economica, ITAM

Abstract: We study how consumers allocate debt across credit cards they already hold using new data on credit card activity for a representative sample of consumers with two homogeneous cards in Mexico. We find that relative prices are a very weak predictor of the allocation of debt, purchases, and payments. On average, consumers pay 31% above their minimum financing cost. Evidence on cross-card debt elasticities with respect to interest rates and credit limits show no substitution in the price margin. Our findings offer evidence against the cost-minimizing hypothesis, provide support to behavioral explanations, and have important implications for pricing and competition.

Keywords: Credit cards; household finance; consumer behavior; Mexico (search for similar items in EconPapers)
JEL-codes: D12 D14 D40 G02 G20 G28 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2014
New Economics Papers: this item is included in nep-ban and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://ftp.itam.mx/pub/academico/inves/seira/14-06.pdf (application/pdf)

Related works:
Journal Article: Borrowing on the Wrong Credit Card? Evidence from Mexico (2017)
Working Paper: Borrowing on the Wrong Credit Card: Evidence from Mexico (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:cie:wpaper:1406

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