@article{cc4be94e174340c59db9e1f58bae41fe,
title = "Long-run price elasticities of demand for credit: Evidence from a countrywide field experiment in Mexico",
abstract = "We use randomized interest rates, offered across eighty geographically distinct regions for twenty-nine months by Mexico{\textquoteright}s largest microlender, to sketch the adjustment from a price change to a new equilibrium. Demand is elastic, and more so over the longer run; e.g. the dollars-borrowed elasticity increases from −1.1 in Year one to −2.9 in Year three. Credit bureau data do not show evidence of crowd-out, although this and other null results are imprecisely estimated. The lender{\textquoteright}s profits increase, albeit noisily, starting in Year two. But competitors do not respond by reducing rates. These findings, together with other results, suggest that informational frictions are important, and that cutting rates furthered Compartamos Banco{\textquoteright}s “double bottom line” of improving social welfare subject to a profitability constraint.",
keywords = "Financial inclusion, Market field experiment, Microcredit, Microfinance, Microlending, Poverty targeting, Profit measurement",
author = "Dean Karlan and Jonathan Zinman",
note = "Funding Information: We would like to thank Kerry Brennan, Evan Fellman, Angela Garcia Vargas, Matt Grant, Kareem Haggag, Rachel Strohm, and Natalia Torres for excellent project management and research assistance, with special thanks to Martin Sweeney for his continued support. Thanks to Alissa Fishbane, Braulio Torres, and Anna York from Innovations for Poverty Action for leadership of IPA-Mexico. Thanks to Abhijit Banerjee, Esther Duflo, Jake Kendall, Melanie Morten, David Roodman, Chris Snyder, and participants in seminars at NBER Household Finance, M.I.T./Harvard and NYU for comments. Thanks to CGAP, in particular Richard Rosenberg, and the Bill and Melinda Gates Foundation for funding support. Thanks to the management and staff of Compartamos Banco for their cooperation. The authors retained complete intellectual freedom to report and interpret the results. Any opinions, errors, or omissions are those of the authors. Funding Information: Acknowledgments. We would like to thank Kerry Brennan, Evan Fellman, Angela Garcia Vargas, Matt Grant, Kareem Haggag, Rachel Strohm, and Natalia Torres for excellent project management and research assistance, with special thanks to Martin Sweeney for his continued support. Thanks to Alissa Fishbane, Braulio Torres, and Anna York from Innovations for Poverty Action for leadership of IPA-Mexico. Thanks to Abhijit Banerjee, Esther Duflo, Jake Kendall, Melanie Morten, David Roodman, Chris Snyder, and participants in seminars at NBER Household Finance, M.I.T./Harvard and NYU for comments. Thanks to CGAP, in particular Richard Rosenberg, and the Bill and Melinda Gates Foundation for funding support. Thanks to the management and staff of Compartamos Banco for their cooperation. The authors retained complete intellectual freedom to report and interpret the results. Any opinions, errors, or omissions are those of the authors. Publisher Copyright: {\textcopyright} The Author(s) 2018. Published by Oxford University Press on behalf of The Review of Economic Studies Limited.",
year = "2019",
month = jul,
day = "1",
doi = "10.1093/restud/rdy046",
language = "English (US)",
volume = "86",
pages = "1704--1746",
journal = "Review of Economic Studies",
issn = "0034-6527",
publisher = "Oxford University Press",
number = "4",
}