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Three Essays on Household Finance

Baugh, Brian Kenneth
http://orcid.org/0000-0001-9616-9326
http://rave.ohiolink.edu/etdc/view?acc_num=osu1493568459472462

Abstract Details

2017, Doctor of Philosophy, Ohio State University, Business Administration.
In this dissertation, I explore various aspects of household decision making in financial markets. In the first essay, I examine the effect of restricting payday credit to payday users. Using administrative banking data from over fifteen thousand online payday borrowers, I exploit a natural experiment surrounding a 2013 U.S. Department of Justice initiative known as Operation Choke Point (OCP) that unexpectedly shut down dozens of unlicensed online payday lenders. Using a difference in differences framework, I find a persistent reduction in payday borrowing of treated households, those with a pre-existing relationship with a lender that is shut down. Relative to control households, treated households reduce borrowing by $136 per month, reduce the number of bounced checks by 17%, and increase consumption by 3%. These effects are persistent and observable six quarters after treatment. A cross-sectional analysis reveals that the positive outcomes following restricted payday loan access are concentrated among the heaviest pre-treatment borrowers. I conclude by analyzing what types of purchases payday loans are financing and find that about half of abnormal spending occurs in predictable categories such as mortgages, car loans, and insurance. Surprisingly, I find evidence of abnormal gambling activity the week following payday borrowing. In the second essay, coauthored with Hoonsuk Park and Zahi Ben-David, we explore how sales tax influences the shopping behavior of individuals. For years, online retailers have maintained a price advantage over brick-and-mortar retailers by not collecting sales tax at the time of sale. Recently, several states have required that the online retailer Amazon collect sales tax during checkout. Using transaction-level data, we document that households living in these states reduce Amazon purchases by 9.4% after sales tax laws were implemented, implying elasticities ranging from –1.2 to –1.4. The effect is more pronounced for large purchases, for which we estimate a reduction of 29.1% in purchases, corresponding to an elasticity of –3.9. Studying competitors in the electronics field, we detect some evidence of substitution toward competing retailers. Consistent with an income effect, we find a reduction in spending in other categories that is concentrated among the heaviest Amazon shoppers. In the third essay, I study the extent to which defined contribution (DC) asset allocation is influenced by plan defaults and whether individuals exercise their option to leave the DC plan. I analyze the investments of 13,500 employees in a state-sponsored retirement plan and find persistent effects of default allocations. Cohorts born in the 1990s hold 16.5% less in money market funds (the historical default allocation) and over 25% more in target date funds (the current default allocation) than those born in the 1980s and earlier. I then analyze a unique feature of the DC plan which enables individuals to transition to a defined benefit (DB) plan (or DB/DC mix) five years after their initial hire date. I find that 22% of individuals exercise this option, 90% of which switch to a more conservative plan. Switching out of DC plans is concentrated in years following the Great Recession and decreases substantially in the post-recession recovery. Individuals invested in the guaranteed return fund are the least likely to exercise the option to switch plans.
Stulz René (Advisor)
Ben-David Itzhak (Committee Member)
Sensoy Berk (Committee Member)
Parker Jonathan (Committee Member)
169 p.
Economics; Finance
household finance; payday loans; sales tax; investor behavior

Recommended Citations

Citations

  • Baugh, B. K. (2017). Three Essays on Household Finance [Doctoral dissertation, Ohio State University]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=osu1493568459472462

    APA Style (7th edition)

  • Baugh, Brian. Three Essays on Household Finance. 2017. Ohio State University, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=osu1493568459472462.

    MLA Style (8th edition)

  • Baugh, Brian. "Three Essays on Household Finance." Doctoral dissertation, Ohio State University, 2017. http://rave.ohiolink.edu/etdc/view?acc_num=osu1493568459472462

    Chicago Manual of Style (17th edition)

osu1493568459472462
519
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This open access ETD is published by The Ohio State University and OhioLINK.