Ulrike Malmendier, University of California-Berkeley
Michael Stepner, University of Toronto
Abstract: Deviations from canonical consumption-savings models have been attributed to a wide range of distortions, including financial constraints and behavioral preferences. We develop a new sufficient statistics approach to measure the impact of such distortions on consumption as a micro-level wedge between actual consumption and a counterfactual ”frictionless” consumption. Our approach is applicable to a broad class of models and, unlike standard wedge measurement approaches, does not rely on an assumption of full-information rational expectations (FIRE), which allows us to isolate the influence of frictions and behavioral preferences from deviations from FIRE. Since different frictions imply different properties of wedges, the estimates of wedges can be used as a diagnostic to distinguish between models. To implement this approach, we field a new survey of economic beliefs, which we link to bank account transactions data for a population of predominantly middle-income US consumers with low liquid wealth. We find that consumption choices are significantly distorted both upward and downward. The median wedge is 52% of frictionless consumption in absolute value, with 75% having negative wedges (under-consuming) and 25% having positive wedges (over-consuming). Since financial constraints only generate negative wedges, additional or alternative distortions (such as present bias or consumer inertia) are necessary to rationalize the consumption decisions of low-liquidity households.
Abstract: This paper examines the impact of access to housing on fertility rates using random variation from housing credit lotteries in Brazil. We find that obtaining housing increases the average probability of having a child by 3.8\% and the number of children by 3.2\%. For 20-25-year-olds, the corresponding effects are 32\% and 33\%, with no increase in fertility for people above age 40. The lifetime fertility increase for a 20-year old is twice as large from obtaining housing immediately relative to obtaining it at age 30. The increase in fertility is stronger for households in areas with lower quality housing, greater rental expenses relative to income, and those with lower household income and lower female income share. These results suggest that alleviating housing credit and physical space constraints can significantly increase fertility.
Abstract: We estimate the causal effect of online sports betting on households' investment, spending, and debt management decisions using household transaction data and a staggered difference-in-differences framework. Following legalization, sports betting spreads quickly, with both the number of participants and frequency of bets increasing over time. This increase does not displace other gambling or consumption but significantly reduces savings, as risky bets crowd out positive expected value investments. These effects concentrate among financially constrained households, as credit card debt increases, available credit decreases, and overdraft frequency rises. Our findings highlight the potential adverse effects of online sports betting on vulnerable households.
Discussant: Rawley Heimer, Arizona State University
