Impulsive Consumption and Financial Wellbeing: Evidence from an Increase in the Availability of Alcohol
Charles A. Dice Working Paper No. 2017-06
52 Pages Posted: 23 Feb 2017 Last revised: 13 Mar 2017
Date Written: February 21, 2017
Increased availability of temptation goods might harm individuals if they have time-inconsistent preferences and consume more in the present than planned before. We study this idea by examining the credit behavior of low-income households around the expansion of the opening hours of retail liquor stores during a nationwide experiment in Sweden. Consistent with store closures serving as commitment devices, expanded operating hours led to higher alcohol consumption (Nordström and Skog 2003) and greater consumer credit uptake and default. Thus, our results show that limiting the availability of temptation goods can improve the financial wellbeing of individuals with inconsistent-time preferences.
Keywords: household finance, behavioral finance, time inconsistent preferences, commitment mechanisms, alcohol, consumer credit
JEL Classification: D03, D12, I18, L51, L66
Suggested Citation: Suggested Citation