Joseph P. Hall, PhD

[*NEW*] Working Paper: “Revealed-Preference Discount Rates”. Draft

Time preferences are central to the study of finance, but our empirical knowledge of discount factors remains limited and heavily shaped by asset-pricing evidence from the small subset of households who hold significant financial wealth, or from lab experiments of unrepresentative populations in unusual conditions. This paper argues that meaningful evidence about intertemporal preferences can be extracted from the credit market and, perhaps surprisingly, from default decisions. I develop a unified framework that uses (i) observed interest rates as revealed-preference lower bounds on constrained households’ intertemporal marginal rates of substitution, and (ii) comparative statics of repayment and default from experimental and quasi-experimental settings as sufficient statistics for underlying impatience. I apply these methods to administrative credit-report data covering millions of auto loans, as well as a meta-analysis to existing experimental and quasi-experimental studies. Time preference heterogeneity emerges as large, systematic, and economically significant. The bottom half of the wealth distribution appears dramatically more impatient than standard calibrations assume, with implied annual discount factors often far above 20% annually in low-income populations. I discuss theoretical interpretations, implications for structural modeling, and consequences for policies targeted at liquidity- or credit-constrained households.

Publication: “Discrimination Expectations in the Credit Market: Survey Evidence from India”. with Stefano Fiorin and Martin Kanz. American Economic Association: Papers and Proceedings. Link to Journal Article.

Abstract: We present results from a representative survey and an information experiment to provide evidence on discrimination expectations. We find that discrimination based on gender, caste, and religion is perceived to be widespread in society overall and in the credit market. Support for affirmative action is shaped by the extent of expected discrimination against a group and by respondents’ own group identity and social attitudes. Information about the true extent of discrimination is effective in correcting inaccurate discrimination expectations but has no meaningful impact on support for policies designed to reduce discrimination in practice.

R&R: “How do Consumers Respond to a Debt Moratorium? Experimental Evidence from India” with Stefano Fiorin and Martin Kanz. CEPR Discussion Paper 17994. Click to Download.

Revise and Resubmit, Review of Financial Studies

Best Paper on Financial Institutions, Western Finance Association, 2024

Abstract: Debt moratoria that allow borrowers to postpone loan payments are a frequently used tool intended to soften the impact of economic crises. We conduct a nationwide experiment with a large consumer lender in India to study how debt forbearance offers affect loan repayment and banking relationships. In the experiment, borrowers receive forbearance offers that are presented either as an initiative of their lender or the result of government regulation. We find that delinquent borrowers who are offered a debt moratorium by their lender are 4 percentage points (7 percent) less likely to default on their loan, while forbearance has no effect on repayment if it is granted by the regulator. Borrowers who are offered forbearance by their lender also have higher demand for future interactions with the lender: in a follow-up experiment conducted several months after the main intervention, demand for a non-credit product offered by the lender is 10 percentage points (27 percent) higher among customers who were offered repayment flexibility by the lender than among customers who received a moratorium offer presented as an initiative of the regulator. Overall, our results suggest that, rather than generating moral hazard, debt forbearance can improve loan repayment and support the creation of longer-term banking relationships not only for liquidity but also for relational contracting reasons. This provides a rationale for offering repayment flexibility even in settings where lenders are not required to provide forbearance.

Working Paper: “Credit Cards and Retail Firms: Historical Evidence from the U.S.” Click to Download.

Best Paper by a Young Scholar, Georgia Tech-Atlanta Fed Household Finance Conference, 2024

Best Paper by a Young Scholar, Cherry Blossom Financial Institute Conference, 2024

Cited by Consumer Financial Protection Bureau Office of Markets: Dec 18, 2024 “The High Cost of Retail Credit Cards”

Abstract: Before 1970, almost all short-term consumer credit in the United States was extended by merchants, but now is extended by banks in the form of credit cards. To evaluate the effects of this change on merchants, I start with a simple decomposition to show that the change in total profits amounts to whether the new technology reduced costs or reduced markups more. I estimate these changes using a natural experiment which exogenously accelerated bank credit card use relative to store credit card use: the 1978 Marquette decision. Usury (maximum interest rate) regulation effectively ended nationwide, differently affecting states based on pre-existing regulation of revolving short-term consumer debt. I estimate that a 20% decrease in merchant lending increased net entry (my preferred proxy for merchant profits) by about 4%, more so for small firms. I build a new microdata panel of retail establishments with new data on bank credit card acceptance constructed from archival Yellow Pages. I use heterogeneity in firms’ sales growth by whether they accept bank cards to identify a structural model where parameters disciplining costs and competition can each vary flexibly, and recover an estimate of a 2.7% reduction in firms’ marginal cost from accepting bank credit cards which is net of writeoffs and swipe fees. I conclude by presenting evidence that cost-reduction is created through banks’ lower labor costs and superior risk-bearing capacity versus firms.

Work in Progress: “Lending to Lemons” with Lulu Wang.

Abstract: We study asymmetric information between lenders in imperfectly competitive credit markets. With small business credit registry data, we estimate a model of lender screening, interest rate offers, and borrower demand. Using the Basel III accord as a marginal cost shock to some banks, we find that marginal cost increases can cause competitors to lower their prices. This identifies asymmetric information according to auction theory. We simulate the equilibrium effects of open banking policies that raise the information precision of non-bank lenders. While small improvements in information enhance competition and increase borrower surplus, large improvements lower both total and borrower surplus.