Abstract

http://ssrn.com/abstract=276052
 
 

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Debt Revolvers For Self Control


Carol C. Bertaut


Board of Governors of the Federal Reserve System

Michael Haliassos


Goethe University Frankfurt - Faculty of Economics and Business Administration; Goethe University Frankfurt - Center for Financial Studies (CFS); CEPR; Goethe University Frankfurt - House of Finance

June 25, 2001

HERMES Center Working Paper 01-11

Abstract:     
By 1998, about two-thirds of U.S. households held a bank-type credit card. Despite high interest rates, most revolve credit card debt. The majority of debt revolvers have substantial liquid assets, apparently violating arbitrage. We propose an "accountant-shopper" model that could provide an explanation for this puzzle. In our model, the "accountant self" (or spouse) of the household can control the expenditures of the "shopper self" (or spouse) by limiting the purchases the shopper can make before encountering the credit limit. Since the card balance is used for control purposes, the accountant self may also find it optimal to save in lower-return riskless assets. Using attitudinal responses and demographic data from the pooled 1995 and 1998 Surveys of Consumer Finances, we estimate a bivariate probit model of the decisions to have a credit card and to revolve debt on it, allowing for sample selection. The pattern of estimated coefficients is consistent with debt revolvers being motivated primarily by self-control considerations rather than intertemporal consumption smoothing.

Number of Pages in PDF File: 39

Keywords: Credit Cards, Consumer Debt, Portfolio Puzzles, Household Portfolios

JEL Classification: G110, E210

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Date posted: July 27, 2001  

Suggested Citation

Bertaut, Carol C. and Haliassos, Michael, Debt Revolvers For Self Control (June 25, 2001). HERMES Center Working Paper 01-11. Available at SSRN: http://ssrn.com/abstract=276052 or http://dx.doi.org/10.2139/ssrn.276052

Contact Information

Carol C. Bertaut
Board of Governors of the Federal Reserve System ( email )
20th and C Streets, NW
Washington, DC 20551
United States
Michael Haliassos (Contact Author)
Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )
Grueneburgplatz 1
Frankfurt am Main, D-60323
Germany
Goethe University Frankfurt - Center for Financial Studies (CFS)
Grueneburgplatz 1
Frankfurt am Main, 60323
Germany
HOME PAGE: http://www.ifk-cfs.de
CEPR
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Goethe University Frankfurt - House of Finance
Grüneburgplatz 1
Frankfurt am Main, 60323
Germany
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