Long-Run Price Elasticities of Demand for Credit: Evidence from a Countrywide Field Experiment in Mexico

52 Pages Posted: 1 Jul 2013

See all articles by Dean S. Karlan

Dean S. Karlan

Northwestern University - Kellogg School of Management; Yale University; Innovations for Poverty Action; Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab (J-PAL); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Jonathan Zinman

Dartmouth College; Innovations for Poverty Action; Jameel Poverty Action Lab; National Bureau of Economic Research (NBER)

Multiple version iconThere are 4 versions of this paper

Date Written: May 1, 2013

Abstract

The long-run price elasticity of demand for credit is a key parameter for intertemporal modeling, policy levers, and lending practice. We use randomized interest rates, offered across 80 regions by Mexico’s largest microlender, to identify a 29-month dollars-borrowed elasticity of -1.9. This elasticity increases from -1.1 in year one to -2.9 in year three. The number of borrowers is also elastic. Credit bureau data does not show evidence of crowd-out. Competitors do not respond by reducing rates, perhaps because Compartamos’ profits are unchanged. The results are consistent with multiple equilibria in loan pricing.

Keywords: microcredi, interest rates, interest rate policy, interest rate elasticities

JEL Classification: E43, G21, O11, O12

Suggested Citation

Karlan, Dean S. and Zinman, Jonathan, Long-Run Price Elasticities of Demand for Credit: Evidence from a Countrywide Field Experiment in Mexico (May 1, 2013). Yale University Economic Growth Center Discussion Paper No. 1024, Yale Economics Department Working Paper No. 115, Available at SSRN: https://ssrn.com/abstract=2272723 or http://dx.doi.org/10.2139/ssrn.2272723

Dean S. Karlan (Contact Author)

Northwestern University - Kellogg School of Management ( email )

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Jonathan Zinman

Dartmouth College ( email )

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HOME PAGE: http://https://sites.dartmouth.edu/jzinman/

Innovations for Poverty Action

1731 Connecticut Ave, 4th floor
New Haven, CT 20009
United States

Jameel Poverty Action Lab

E60-246
77 Massachusetts Avenue
Cambridge, MA 02139
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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