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Household debt, automatic bill payments and inattention: Theory and evidence

In this article we analyze the impact of automatic bill payment (ABP) on household debt. We present a theoretical intertemporal consumption model that shows an inattention effect when individuals subscribe an ABP for their debts. This effect causes a higher level of indebtedness (beyond optimal) and, therefore, well-being loss. Furthermore, we empirically test this theory for Chile, an emerging economy. We estimate a Tobit-Probit conditional mixed process (CMP) model, using data from the Central Bank of Chile’s Household Financial Survey (HFS). The results confirm the existence of a positive and significant effect of the use of ABP on the financial burden of households.

Carlos Delgado Fuentealba, Universidad de Concepción
Jorge Muñoz Mendoza, Universidad de Concepción
Sandra Sepúlveda Yelpo, Universidad de Concepción
Carmen Veloso Ramos, Universidad de Concepción
Rodrigo Fuentes-Solís, Universidad de Talca

Journal of Economic Psychology

File Type: 102385
Categorías: Economía, Finanzas, Políticas Públicas
Etiquetas: Automatic bill payment, Household decision making, Inattention, Indebtedness, Intertemporal consumption