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Borrowing on the Wrong Credit Card: Evidence from Mexico

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  • Ponce Alejandro
  • Seira Enrique
  • Zamarripa Guillermo

Abstract

We study how consumers allocate debt across credit cards they already hold using new data on credit card activity for a representative sample of consumers with two homogeneous cards in Mexico. We find that relative prices are a very weak predictor of the allocation of debt, purchases, and payments. On average, consumers pay 31% above their minimum financing cost. Evidence on cross-card debt elasticities with respect to interest rates and credit limits show no substitution in the price margin. Our findings offer evidence against the cost-minimizing hypothesis and provide support to behavioral explanations.

Suggested Citation

  • Ponce Alejandro & Seira Enrique & Zamarripa Guillermo, 2014. "Borrowing on the Wrong Credit Card: Evidence from Mexico," Working Papers 2014-03, Banco de México.
    • Handle: RePEc:bdm:wpaper:2014-03
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    More about this item

    JEL classification:

    • G4 - Financial Economics - - Behavioral Finance
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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    1. Borrowing on the Wrong Credit Card? Evidence from Mexico (AER 2017) in ReplicationWiki

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