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

53 Pages Posted: 8 Jun 2013 Last revised: 8 Oct 2014

See all articles by Dean S. Karlan

Dean S. Karlan

Yale University; Innovations for Poverty Action; Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab; 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: June 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.

Suggested Citation

Karlan, Dean S. and Zinman, Jonathan, Long-Run Price Elasticities of Demand for Credit: Evidence from a Countrywide Field Experiment in Mexico (June 2013). NBER Working Paper No. w19106. Available at SSRN: https://ssrn.com/abstract=2276369

Dean S. Karlan (Contact Author)

Yale University ( email )

Box 208269
New Haven, CT 06520-8269
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Innovations for Poverty Action ( email )

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Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab ( email )

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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR) ( email )

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Jonathan Zinman

Dartmouth College ( email )

Hanover, NH 03755
United States
603-646-0075 (Phone)

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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