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Ryan McDevitt - Duke University’s Fuqua School of Business
Thursday 04 December 2014, 05:30pm - 07:00pm

The Elasticity of Demand for Alternative Financial Services: Evidence from Check-Cashing Price Changes in the South Bronx

Abstract:

Using proprietary data from customers’ transactions, we estimate the elasticity of demand for check-cashing services. Our identification strategy exploits two key features of the data: one bank unilaterally reduced its check-cashing fees while its nearby competitors maintained theirs at the state-regulated ceiling. Based on customers’ behavior following the price change, we show that a 1 percent change in price affects demand nearly nine times as much as a 1 percent change in distance. As New York regulates both check cashers’ fees and locations, we use our findings to evaluate the welfare implications of reducing the state rate cap while simultaneously increasing check cashers’ protected territories.

   
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