Monday, August 30, 2010

Who gains and who loses from credit card payments?: theory and calibrations

Posted by D. Daniel Sokol

Scott Schuh, Oz Shy, Joanna Stavins (all Federal Reserve Bank of Boston) explain Who gains and who loses from credit card payments?: theory and calibrations.

ABSTRACT: Merchant fees and reward programs generate an implicit monetary transfer to credit card users from non-card (or “cash”) users because merchants generally do not set differential prices for card users to recoup the costs of fees and rewards. On average, each cash-using household pays $151 to card-using households and each card-using household receives $1,482 from cash users every year. Because credit card spending and rewards are positively correlated with household income, the payment instrument transfer also induces a regressive transfer from low-income to high-income households in general. On average, and after accounting for rewards paid to households by banks, the lowest-income household ($20,000 or less annually) pays $23 and the highest-income household ($150,000 or more annually) receives $756 every year. We build and calibrate a model of consumer payment choice to compute the effects of merchant fees and card! rewards on consumer welfare. Reducing merchant fees and card rewards would likely increase consumer welfare.

https://lawprofessors.typepad.com/antitrustprof_blog/2010/08/who-gains-and-who-loses-from-credit-card-payments-theory-and-calibrations.html

| Permalink

TrackBack URL for this entry:

https://www.typepad.com/services/trackback/6a00d8341bfae553ef01348646d72a970c

Listed below are links to weblogs that reference Who gains and who loses from credit card payments?: theory and calibrations:

Comments

Post a comment