Working Papers

• Liquidity Based Contracting: A Path to Greater Efficiency in Payday Lending [Job Market Paper]

  Presented at: Columbia Business School ● Consumer Finance Protection Bureau x2 ● Federal Reserve Bank of Philadelphia x2 ● Federal Reserve Board x2 ● Georgia Institute of Technology ● Stockholm School of Economics ● Office of Financial Research, Treasury ● Federal Deposit Insurance Corporation ● AFFECT ● Federal Reserve Bank of Atlanta ● WFA 2024: Early Career Women in Finance Conference ● Junior Household Finance Seminar Series x2

  The $15b payday loan market is criticized for its excessively high prices and high loan-renewal rates. In this paper, I study how payday loan borrower welfare can improve by examining these criticisms. First, I use bank-transaction level data on household spending, income, and payday loan activity to document three novel stylized facts on borrowers. Together, they suggest that a payday borrower is poor, has volatile income, and uses payday loans to smooth baseline consumption needs after an adverse idiosyncratic income shock. Second, I use these findings to motivate a short-term lending model. The equilibrium contract in a fleshed-out model with asymmetric information and rate caps matches the real-life payday loan contract when borrowers have low expected income and high income volatility relative to the initial loan and baseline consumption needs. Third, I calibrate my model using my bank-transaction dataset. I find that, relative to borrower utility in my calibrated model, welfare increases between 5% and 28.7% when rollover fees are decreased, initial fees are increased, and lender profit is held constant. However, this increase is not monotonic, and points of inflection vary with the loan amount, suggesting that considering this dimension in contracts is necessary.

Work-in-progress

• Efficient Mechanism for Joint Allocation of Social Funding of Emergency and Primary Healthcare Delivery to Uninsured Patient Populations [Draft available on request] (joint with Ujjal Mukherjee and Sridhar Seshadri)

  Presented at: Purdue University ● Columbia Business School

  In this paper, we perform an economic analysis of the Global Payment Program (GPP) instituted in 2014 by the Department of Health Services in the state of California. The GP allows healthcare providers to extend primary and preventative care to uninsured patients. It is supported by a fraction of the federally funded Disproportionate Share Hospital (DSH) scheme, which allows a fixed and assured payment to healthcare organizations against set targets. First, we derive equilibrium conditions for healthcare organizations to invest in emergency outpatient capacity above the mandated minimum levels in the absence of GPP, i.e., with only DSH payments. Second, we derive the equilibrium conditions for hospitals to participate in the GPP program, and invest in emergency outpatient capacity under combined GPP and DSH payments. We show that in general GPP increases the social surplus of healthcare services. Finally, we analyze conditions under which the social planner can maximize the social surplus from GPP program. Particularly, we derive the optimal set-aside amount for GPP from DSH, and derive optimal allocation policies for GPP funds by comparing between demand driven allocation policies, and supply driven allocation policies. This paper contributes by demonstrating that social support for primary and preventative care, in addition to emergency care, has the potential to improve social surplus from healthcare services.

• Introducing Installment Loans: Low-Income Borrower Behavior and Welfare (joint with Robert A. Farrokhnia and Michaela Pagel)

  Presented at: Columbia Business School

  How does low-income borrower behavior and welfare vary with the design and duration of a short term, small dollar contact? In the U.S. there is a recent trend of traditional payday lenders newly offering installment loans, which have higher principal amounts, and a higher frequency of smaller payments over a longer contract term. However, even given the controversial nature of payday lending, the impact of this shift on borrowers has not been studied. For identification, we use a 2019 policy change in Florida, which allows payday lenders to offer installment loans as a new product. Using daily transaction level data of U.S. households, provided by a non-prot Fintech app, we utilize a differences-in-differences (DID) methodology. We find that after the policy is enacted, there are a higher number of repayments, per loan extended, and when given the option, borrowers are choosing installment lending over traditional payday loans.