An Experimental Analysis of the Demand for Payday Loans

27 Pages Posted: 15 Jan 2008 Last revised: 29 Apr 2010

Bart J. Wilson

Chapman University - Economic Science Institute (ESI); Chapman University, The Dale E. Fowler School of Law

David W. Findlay

Colby College

James W. Meehan Jr.

Colby College

Charissa P. Wellford

Independent

Karl Schurter

University of Virginia

Date Written: April 28, 2010

Abstract

The payday loan industry is one of the fastest growing segments of the consumer financial services market in the United States. The purpose of our study is to design an environment similar to the one that payday loan customers face. We then conduct a laboratory experiment to examine what effect, if any, the existence of payday loans has on individuals' abilities to manage and to survive financial setbacks. Our primary objective is to examine whether access to payday loans improves or worsens the likelihood of survival in our experiment. We also test the degree to which people's use of payday loans affects their ability to survive financial shocks. We find that payday loans help the subjects to absorb expenditure shocks and, therefore, survive. However, subjects whose demand for payday loans exceeds a certain threshold level are at a greater risk than a corresponding subject in the treatment in which payday loans do not exist.

Keywords: Payday Loans, Experimental Economics

JEL Classification: D14, C9

Suggested Citation

Wilson, Bart J. and Findlay, David W. and Meehan, James W. and Wellford, Charissa P. and Schurter, Karl, An Experimental Analysis of the Demand for Payday Loans (April 28, 2010). Available at SSRN: https://ssrn.com/abstract=1083796 or http://dx.doi.org/10.2139/ssrn.1083796

Bart J. Wilson (Contact Author)

Chapman University - Economic Science Institute (ESI) ( email )

One University Drive
Orange, CA 92866
United States
(714) 628-7306 (Phone)

Chapman University, The Dale E. Fowler School of Law ( email )

One University Drive
Orange, CA 92866-1099
United States
(714) 628-7306 (Phone)

HOME PAGE: http://www1.chapman.edu/~bjwilson/

David W. Findlay

Colby College ( email )

4000 Mayflower Hill
Waterville, ME 04901-8852
United States
2078595233 (Phone)
2078595229 (Fax)

James W. Meehan Jr.

Colby College ( email )

4000 Mayflower Hill
Waterville, ME 04901-8852
United States
207-859-5237 (Phone)

Charissa P. Wellford

Independent ( email )

No Address Available
901-751-3368 (Phone)
901-751-3368 (Fax)

Karl Schurter

University of Virginia ( email )

1400 University Ave
Charlottesville, VA 22903
United States

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