Discussion paper

DP9503 Long-Run Price Elasticities of Demand for Credit: Evidence from a Countrywide Field Experiment in Mexico

The long-run price elasticity of demand for credit is a key parameter for intertemporal modeling, policy levers, and lending practice. We use randomized interest rates, offered across 80 regions by Mexico?s largest microlender, to identify a 29-month dollars-borrowed elasticity of -1.9. This elasticity increases from -1.1 in year one to -2.9 in year three. The number of borrowers is also elastic. Credit bureau data does not show evidence of crowd-out. Competitors do not respond by reducing rates, perhaps because Compartamos? profits are unchanged. The results are consistent with multiple equilibria in loan pricing.

£6.00
Citation

Zinman, J and D Karlan (2013), ‘DP9503 Long-Run Price Elasticities of Demand for Credit: Evidence from a Countrywide Field Experiment in Mexico‘, CEPR Discussion Paper No. 9503. CEPR Press, Paris & London. https://cepr.org/publications/dp9503