Estimating Discount Functions with Consumption Choices over the Lifecycle

Intertemporal preferences are difficult to measure. We estimate time preferences using a structural buffer stock consumption model and the Method of Simulated Moments. The model includes stochastic labor income, liquidity constraints, child and adult dependents, liquid and illiquid assets, revolving credit, retirement, and discount functions that allow short-run and long-run discount rates to differ. Data on retirement wealth accumulation, credit card borrowing, and consumption-income comovement identify the model. Our benchmark estimates imply a 40% short-term annualized discount rate and a 4.3% long-term annualized discount rate. Almost all specifications reject the restriction to a constant discount rate. Our quantitative results are sensitive to assumptions about the return on illiquid assets and the coefficient of relative risk aversion. When we jointly estimate the coefficient of relative risk aversion and the discount function, the short-term discount rate is 15% and the long-term discount rate is 3.8%.

Self-Control and Saving for Retirement

macroeconomics, Self-Control, Saving, Retirement

Barriers to household risk management : evidence from India

Why do many households remain exposed to large exogenous sources of non-systematic income risk? This paper uses a series of randomized field experiments in rural India to test the importance of price and non-price factors in the adoption of an innovative rainfall insurance product. The analysis finds that demand is significantly price-elastic, but that even if insurance were offered with payout ratios similar to US, widespread coverage would not be achieved. The paper identifies key non-price frictions that limit demand: liquidity constraints, particularly among poor households, lack of trust, and limited salience. The authors suggest potential improvements in contract design to mitigate these frictions.Financial Literacy,Debt Markets,Access to Finance,Emerging Markets,Labor Policies

Dynamics of Demand for Index Insurance: Evidence from a Long-Run Field Experiment

This paper estimates how experimentally-manipulated experiences with a novel financial product, rainfall index insurance, affect subsequent insurance demand. Using a seven-year panel, we develop three main findings. First, recent experience matters for demand, consistent with overinference from small samples. Second, spillovers also matter, in the sense that the recent payout experience of village co-residents affects insurance demand about as much as one's own recent payout experience. Third, the spillover effect decays as time passes while the effect of one's own experience does not. We discuss implications of this analysis for commercial sustainability of this complicated but promising risk management technology

Pecuniary Mistakes? Payday Borrowing by Credit Union Members

This chapter examines patterns of financial choices by a credit union’s members using transaction-level administrative data on checking, savings, and line-of-credit (LOC) accounts. We observe substantial payday loan use when cheaper sources of liquidity are available, resulting in average interest losses of about $88 over six and a half months. In addition, we find much higher levels of transaction activity by payday borrowing members than by other members, at half the average transaction dollar magnitude. These results are consistent with previous work identifying financial stress and decision-making challenge

Payday Loans and Credit Cards: New Liquidity and Credit Scoring Puzzles?

Using a unique dataset matched at the individual level from two administrative sources, we examine household choices between liabilities and assess the informational content of prime and subprime credit scores in the consumer credit market. First, more specifically, we assess consumers' effectiveness at prioritizing use of their lowest-cost credit option. We find that most borrowers from one payday lender who also have a credit card from a major credit card issuer have substantial credit card liquidity on the days they take out their payday loans. This is costly because payday loans have annualized interest rates of at least several hundred percent, though perhaps partly explained by the fact that borrowers have experienced substantial declines in credit card liquidity in the year leading up to the payday loan. Second, we show that FICO scores and Teletrack scores have independent information and are specialized for the types of lending where they are used. Teletrack scores have eight times the predictive power for payday loan default as FICO scores. We also show that prime lenders should value information about their borrowers' subprime activity. Taking out a payday loan predicts nearly a doubling in the probability of serious credit card delinquency over the next year.

Chloroquine reduces arylsulphatase B activity and increases chondroitin-4-sulphate: implications for mechanisms of action and resistance

<p>Abstract</p> <p>Background</p> <p>The receptors for adhesion of <it>Plasmodium falciparum</it>-infected red blood cells (RBC) in the placenta have been identified as chondroitin-4-sulphate (C4S) proteoglycans, and the more sulphate-rich chondroitin oligosaccharides have been reported to inhibit adhesion. Since the anti-malarial drug chloroquine accumulates in lysosomes and alters normal lysosomal processes, the effects of chloroquine on the lysosomal enzyme arylsulphatase B (ASB, N-acetylgalactosamine-4-sulphatase), which removes 4-sulphate groups from chondroitin-4-sulphate, were addressed. The underlying hypothesis derived from the recognized impairment of attachment of parasite-infected erythrocytes in the placenta, when chondroitin-4-sulphation was increased. If chloroquine reduced ASB activity, leading to increased chondroitin-4-sulphation, it was hypothesized that the anti-malarial mechanism of chloroquine might derive, at least in part, from suppression of ASB.</p> <p>Methods</p> <p>Experimental methods involved cell culture of human placental, bronchial epithelial, and cerebrovascular cells, and the <it>in vitro </it>exposure of the cells to chloroquine at increasing concentrations and durations. Measurements of arylsulphatase B enzymatic activity, total sulphated glycosaminoglycans (sGAG), and chondroitin-4-sulphate (C4S) were performed using <it>in vitro </it>assays, following exposure to chloroquine and in untreated cell preparations. Fluorescent immunostaining of ASB was performed to determine the effect of chloroquine on cellular ASB content and localization. Mass spectrometry and high performance liquid chromatography were performed to document and to quantify the changes in chondroitin disaccharides following chloroquine exposure.</p> <p>Results</p> <p>In the human placental, bronchial epithelial, and cerebrovascular cells, exposure to increasing concentrations of chloroquine was associated with reduced ASB activity and with increased concentrations of sGAG, largely attributable to increased C4S. The study data demonstrated: 1) decline in ASB activity following chloroquine exposure; 2) inverse correlation between ASB activity and C4S content; 3) increased content of chondroitin-4-sulphate disaccharides following chloroquine exposure; and 4) decline in extent of chloroquine-induced ASB reduction with lower baseline ASB activity. Confocal microscopy demonstrated the presence of ASB along the cell periphery, indicating extra-lysosomal localization.</p> <p>Conclusions</p> <p>The study data indicate that the therapeutic mechanism of chloroquine action may be attributable, at least in part, to reduction of ASB activity, leading to increased chondroitin-4-sulphation in human placental, bronchial epithelial, and cerebrovascular cells. In vivo, increased chondroitin-4-sulphation may reduce the attachment of <it>P. falciparum</it>-infected erythrocytes to human cells. Extra-lysosomal localization of ASB and reduced impact of chloroquine when baseline ASB activity is less suggest possible mechanisms of resistance to the effects of chloroquine.</p