July 26, 2013 Financial Products Innovation Fund Working Group Meeting
SHOCK-umentation
Jonathan ZinmanDartmouth College and
IPA’s U.S. Household Finance Initiative
Theories of unproductive consumer borrowing
Temptation Vissing-Jorgensen paper on luxury spending predicting
default Over-optimism about, inattention to, how will
pay back Anecdotal evidence
Price misperceptions Correlation evidence in Stango-Zinman JF
Loss aversion around prior consumption, in face of negative income shock Anecdotal evidence
Theories of “productive” consumer borrowing
“Investment” broadly defined to include job retention, skill-building, health
Evidence from microcredit RCTs consistent with thisMost strikingly Karlan-Zinman RFS on job retention
The 80 in the 80-20 rule
Objective
Lend to the 80
Ration the 20
(or: adjust price per risk)
Basic idea
Shockumentation as a feature of a (small-dollar) consumer loan product
Antecedents
Key Design Issue: Disbursement
Disbursement directly to seller of the investment good?
Or can do without? Copy of invoice? Receipt? Scalable channel: submit by smartphone?
Other Design Issues
Which shocks to lend against?
Shockumentation as requirement, or as price/term concession?