Luxury marketers have been watching the rise of sharing startups and the unprecedented consumer acceptance of the same with trepidation. This phenomenon has the potential of scuttling the apple cart of legacy luxury brands and the conventional way of marketing. Thus, the author makes an attempt to dissect the consumer motivations for sharing precious possessions on the one hand and using such services on the other hand. By observing such phenomenon at close quarters using in-depth consumer interviews supplemented by netnographic observation of luxury brand communities, this paper attempts to capture the enablers of a changing consumer psyche in order to chart out strategic implications for brand custodians. In short, this paper examines the following research question a) what are the consumer motivations for sharing as well as using shared luxury brands b) what are the enablers of consumer transition from ownership centric to experience centric consumption of luxury.
{"title":"Consumer Motivations for Sharing Luxury Brands","authors":"B. Saju","doi":"10.2139/ssrn.3701917","DOIUrl":"https://doi.org/10.2139/ssrn.3701917","url":null,"abstract":"Luxury marketers have been watching the rise of sharing startups and the unprecedented consumer acceptance of the same with trepidation. This phenomenon has the potential of scuttling the apple cart of legacy luxury brands and the conventional way of marketing. Thus, the author makes an attempt to dissect the consumer motivations for sharing precious possessions on the one hand and using such services on the other hand. By observing such phenomenon at close quarters using in-depth consumer interviews supplemented by netnographic observation of luxury brand communities, this paper attempts to capture the enablers of a changing consumer psyche in order to chart out strategic implications for brand custodians. In short, this paper examines the following research question a) what are the consumer motivations for sharing as well as using shared luxury brands b) what are the enablers of consumer transition from ownership centric to experience centric consumption of luxury.","PeriodicalId":176300,"journal":{"name":"Microeconomics: Intertemporal Consumer Choice & Savings eJournal","volume":"22 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-05-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125274194","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We consider a broad class of intertemporal economic problems and characterize the short-run and long-run responses of the demand for a good to a permanent increase in its market price. Depending on the interplay between self-productivity and time discounting, we show that dynamic substitution effects can generate price elasticities of opposite signs in the short run and in the long run. (JEL D11, D15, H20, J22, J24)
{"title":"Substitution Effects in Intertemporal Problems","authors":"D. Dragone, Paolo Vanin","doi":"10.2139/ssrn.3596124","DOIUrl":"https://doi.org/10.2139/ssrn.3596124","url":null,"abstract":"We consider a broad class of intertemporal economic problems and characterize the short-run and long-run responses of the demand for a good to a permanent increase in its market price. Depending on the interplay between self-productivity and time discounting, we show that dynamic substitution effects can generate price elasticities of opposite signs in the short run and in the long run. (JEL D11, D15, H20, J22, J24)","PeriodicalId":176300,"journal":{"name":"Microeconomics: Intertemporal Consumer Choice & Savings eJournal","volume":"23 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-05-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122819597","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Using Swedish administrative panel data, we show that workers facing higher left-tail income risk when equity markets perform poorly are less likely to participate in the stock market and, conditional on participation, have lower equity shares. We call this measure of income risk "cyclical skewness'' and show that it is a better predictor of equity holdings than other income risk measures such as variance, covariance, and counter-cyclical volatility. In line with theory, our findings are stronger at the beginning of the life-cycle, are not significant for individuals with substantial financial wealth, and are stronger when we focus on permanent income shocks. Finally, within their risky portfolio, workers put less weight on securities generating negative returns when their own income risk increases.
{"title":"Countercyclical Income Risk and Portfolio Choices: Evidence from Sweden","authors":"S. Catherine, Paolo Sodini, Yapei Zhang","doi":"10.2139/ssrn.3612590","DOIUrl":"https://doi.org/10.2139/ssrn.3612590","url":null,"abstract":"Using Swedish administrative panel data, we show that workers facing higher left-tail income risk when equity markets perform poorly are less likely to participate in the stock market and, conditional on participation, have lower equity shares. We call this measure of income risk \"cyclical skewness'' and show that it is a better predictor of equity holdings than other income risk measures such as variance, covariance, and counter-cyclical volatility. In line with theory, our findings are stronger at the beginning of the life-cycle, are not significant for individuals with substantial financial wealth, and are stronger when we focus on permanent income shocks. Finally, within their risky portfolio, workers put less weight on securities generating negative returns when their own income risk increases.","PeriodicalId":176300,"journal":{"name":"Microeconomics: Intertemporal Consumer Choice & Savings eJournal","volume":"5 2","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-05-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114126262","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A criticism of earnings risk models of wealth inequality is that they do not accurately capture individual's earnings risks. I construct a stochastic process that directly determines workers earnings. I use a set of new empirical moments to match moments of earnings changes in the universe of workers in the U.S. economy. Despite its computational challenges, a stochastic process that determines earnings instead of labor productivity improves the modeling of risks as it allows me to (1) reproduce the distribution of earnings, (2) match several moments of the distribution of earnings changes, and (3) skill-dependence of earnings profiles. To study the implications of such data-guided earnings risks for wealth concentration, I develop a general equilibrium stochastic life cycle production economy with skilled and unskilled workers. I show that data-guided earnings risks, contrary to what Castaneda et al. (2003) implies, are not large enough to explain high saving rates of top earners. Therefore, wealth in the model is less concentrated than the data. I also study how changes in earnings affect the distribution of wealth over time. Consistent with the data, I allow for earnings profiles, skill premium, share of skilled workers in the population, and tax schedules to vary with time. My findings show that changes in Wealth inequality between 1989 and 2013 can almost entirely be attributed to changes in earnings dispersion. Although in both periods, wealth concentration is lower than the data, changes in the wealth share of top one percent over time matches the data.
{"title":"Earnings Risks, Savings and Wealth Concentration","authors":"M. Mohaghegh","doi":"10.2139/ssrn.3590701","DOIUrl":"https://doi.org/10.2139/ssrn.3590701","url":null,"abstract":"A criticism of earnings risk models of wealth inequality is that they do not accurately capture individual's earnings risks. I construct a stochastic process that directly determines workers earnings. I use a set of new empirical moments to match moments of earnings changes in the universe of workers in the U.S. economy. Despite its computational challenges, a stochastic process that determines earnings instead of labor productivity improves the modeling of risks as it allows me to (1) reproduce the distribution of earnings, (2) match several moments of the distribution of earnings changes, and (3) skill-dependence of earnings profiles. To study the implications of such data-guided earnings risks for wealth concentration, I develop a general equilibrium stochastic life cycle production economy with skilled and unskilled workers. I show that data-guided earnings risks, contrary to what Castaneda et al. (2003) implies, are not large enough to explain high saving rates of top earners. Therefore, wealth in the model is less concentrated than the data. I also study how changes in earnings affect the distribution of wealth over time. Consistent with the data, I allow for earnings profiles, skill premium, share of skilled workers in the population, and tax schedules to vary with time. My findings show that changes in Wealth inequality between 1989 and 2013 can almost entirely be attributed to changes in earnings dispersion. Although in both periods, wealth concentration is lower than the data, changes in the wealth share of top one percent over time matches the data.","PeriodicalId":176300,"journal":{"name":"Microeconomics: Intertemporal Consumer Choice & Savings eJournal","volume":"87 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131358091","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
End-of-season sale (EOSS) has been one of the most important long duration sales promotion/discountingevents for brick-and-mortar retailers and consumers in India. But, ever since the online retailing format has emerged in India, consumers now have wider options available for them to buy a product at a discounted price and notably, as online stores in India are following the product discounting as one of the key drivers for consumer acquisition, consumers’ perspective towards discount at brick-and-mortar store is expected to have changed.This change in consumers’ perspective has put the majority of brick-and-mortar retailers in India into a quandary and they are losing out their market share slowly to online retailers. In this research, authors have attempted to investigate; (a) proof, (b) pattern, (c) magnitude, (d) significance and (e) impact of this change in perspective towards discount across stakeholders and transpired the research outcomes into suggestions to enable brick-and-mortar retailers to design appropriate sales promotions.
{"title":"Changes in Consumer Perspective towards Discount at Brick-and-Mortar Stores owing to Emergence of Online Store Format in India","authors":"Ganesha H. R., P. Aithal, K. P.","doi":"10.2139/ssrn.3580911","DOIUrl":"https://doi.org/10.2139/ssrn.3580911","url":null,"abstract":"End-of-season sale (EOSS) has been one of the most important long duration sales\u0000promotion/discountingevents for brick-and-mortar retailers and consumers in India. But, ever since the online retailing format has emerged in India, consumers now have wider options available for them to buy a product at a discounted price and notably, as online stores in India are following the product discounting as one of the key drivers for consumer acquisition, consumers’ perspective towards discount at brick-and-mortar store is expected to have changed.This change in consumers’ perspective has put the majority of brick-and-mortar retailers in India into a quandary and they are losing out their market share slowly to online retailers. In this research, authors have attempted to investigate; (a) proof, (b) pattern, (c) magnitude, (d) significance and (e) impact of this change in perspective towards discount across stakeholders and transpired the research outcomes into suggestions to enable brick-and-mortar retailers to design appropriate sales promotions.","PeriodicalId":176300,"journal":{"name":"Microeconomics: Intertemporal Consumer Choice & Savings eJournal","volume":"89 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-04-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131895361","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper, we employ a unique tax experiment and dataset in a highly salient tax rate environment to examine consumer response to complex and uncertain tax reforms. Tax reforms raise some fundamental questions in public finance: How does consumption respond to tax change? How is the tax burden distributed among the stakeholders? More importantly, are these answers conditional on whether the tax regime (and not the tax rate) is salient? We find that unpredictability of tax policy changes induces imperfectly rational consumption response. The tax regime complexity does not allow clear tracing of price change despite full information about tax rate changes and so, consumers also respond to notional price changes. This notional response is based on inaccurate beliefs about the impact of visible tax changes on real commodity prices and thus, consumers hoard even those goods that experience a price fall post reform. We further analyse commodity pricing to see how businesses respond and provide evidence of skewness in pricing response post the reform. The burden of tax increase is passed through more than the benefit of tax decrease. Both these aspects, irrational hoarding and an asymmetric transfer of tax benefit to final consumers, are welfare reducing. This is important from a policy perspective since it highlights issues created by complex tax policies.
{"title":"(Ir)Rational Consumer Responses: Effect of Uncertain Tax Changes","authors":"Sumit Agarwal, Debarati Basu, Pulak Ghosh, Bhuvanesh Pareek, Jian Zhang","doi":"10.2139/ssrn.3574474","DOIUrl":"https://doi.org/10.2139/ssrn.3574474","url":null,"abstract":"In this paper, we employ a unique tax experiment and dataset in a highly salient tax rate environment to examine consumer response to complex and uncertain tax reforms. Tax reforms raise some fundamental questions in public finance: How does consumption respond to tax change? How is the tax burden distributed among the stakeholders? More importantly, are these answers conditional on whether the tax regime (and not the tax rate) is salient? We find that unpredictability of tax policy changes induces imperfectly rational consumption response. The tax regime complexity does not allow clear tracing of price change despite full information about tax rate changes and so, consumers also respond to notional price changes. This notional response is based on inaccurate beliefs about the impact of visible tax changes on real commodity prices and thus, consumers hoard even those goods that experience a price fall post reform. We further analyse commodity pricing to see how businesses respond and provide evidence of skewness in pricing response post the reform. The burden of tax increase is passed through more than the benefit of tax decrease. Both these aspects, irrational hoarding and an asymmetric transfer of tax benefit to final consumers, are welfare reducing. This is important from a policy perspective since it highlights issues created by complex tax policies.","PeriodicalId":176300,"journal":{"name":"Microeconomics: Intertemporal Consumer Choice & Savings eJournal","volume":"82 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-04-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127479991","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper studies the effects of demographic structure on the cyclical volatility of aggregate consumption. We first document that young households have more volatile consumption expenditures in business cycles than prime-aged ones. Then, we identify large effects of demographic composition on cyclical volatility of consumption using variations of population age structure for 30 countries from 1951 to 2016. A simple model with differences in credit market access and exposure to shocks between agents of different age explains the empirical findings. When calibrated to the U.S. data, the model indicates that the former channel explains roughly 60 percent of the differences in cyclical consumption responses between young and old households, while the latter channel explains the remaining 40 percent.
{"title":"The Demographic Composition of Cyclical Consumption Volatility","authors":"Anson Zhou","doi":"10.2139/ssrn.3426911","DOIUrl":"https://doi.org/10.2139/ssrn.3426911","url":null,"abstract":"This paper studies the effects of demographic structure on the cyclical volatility of aggregate consumption. We first document that young households have more volatile consumption expenditures in business cycles than prime-aged ones. Then, we identify large effects of demographic composition on cyclical volatility of consumption using variations of population age structure for 30 countries from 1951 to 2016. A simple model with differences in credit market access and exposure to shocks between agents of different age explains the empirical findings. When calibrated to the U.S. data, the model indicates that the former channel explains roughly 60 percent of the differences in cyclical consumption responses between young and old households, while the latter channel explains the remaining 40 percent.","PeriodicalId":176300,"journal":{"name":"Microeconomics: Intertemporal Consumer Choice & Savings eJournal","volume":"23 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-04-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124513471","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-04-01DOI: 10.21799/frbp.dp.2020.02
P. Calem, C. Ramasamy, Jenna Wang
This paper quantifies relationships of long-term auto borrowing and auto-loan default to observable borrower characteristics and economic variables. We also quantify the residual components of the trends in long-term borrowing and delinquency not attributable to identifiable factors. Second, our paper provides new evidence on the relationship between longer-term borrowing and auto-loan default risk. We find that observable factors associated with the choice of a long loan term usually indicate an increased risk of default. We also find that the increasing share of long-term loans and the rising frequency of auto-loan default are mostly attributable by nonspecific, year-of-origination (fixed) effects rather than factors observable from our data or observable to lenders. Moreover, although borrowers opting for long loan terms are more likely to default in most comparisons, the increasing share of borrowers selecting a long loan term between 2011 and 2016 did not materially contribute to the rise in default rates. Overall, our analysis highlights the role of unobserved borrower characteristics in driving the recent trends in long-term borrowing and default.
{"title":"What Explains the Post–2011 Trends of Longer Maturities and Rising Default Rates on Auto Loans?","authors":"P. Calem, C. Ramasamy, Jenna Wang","doi":"10.21799/frbp.dp.2020.02","DOIUrl":"https://doi.org/10.21799/frbp.dp.2020.02","url":null,"abstract":"This paper quantifies relationships of long-term auto borrowing and auto-loan default to observable borrower characteristics and economic variables. We also quantify the residual components of the trends in long-term borrowing and delinquency not attributable to identifiable factors. Second, our paper provides new evidence on the relationship between longer-term borrowing and auto-loan default risk. We find that observable factors associated with the choice of a long loan term usually indicate an increased risk of default. We also find that the increasing share of long-term loans and the rising frequency of auto-loan default are mostly attributable by nonspecific, year-of-origination (fixed) effects rather than factors observable from our data or observable to lenders. Moreover, although borrowers opting for long loan terms are more likely to default in most comparisons, the increasing share of borrowers selecting a long loan term between 2011 and 2016 did not materially contribute to the rise in default rates. Overall, our analysis highlights the role of unobserved borrower characteristics in driving the recent trends in long-term borrowing and default.","PeriodicalId":176300,"journal":{"name":"Microeconomics: Intertemporal Consumer Choice & Savings eJournal","volume":"43 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125771834","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Rising income inequality since the 1980s in the United States has generated a substantial increase in saving by the top of the income distribution, which we call the saving glut of the rich. The saving glut of the rich has been as large as the global saving glut, and it has not been associated with an increase in investment. Instead, the saving glut of the rich has been linked to the substantial dissaving and large accumulation of debt by the non-rich. Analysis using variation across states shows that the rise in top income shares can explain almost all of the accumulation of household debt held as a financial asset by the household sector. Since the Great Recession, the saving glut of the rich has been financing government deficits to a greater degree.
{"title":"The Saving Glut of the Rich and the Rise in Household Debt","authors":"Atif R. Mian, Amir Sufi","doi":"10.3386/W26941","DOIUrl":"https://doi.org/10.3386/W26941","url":null,"abstract":"Rising income inequality since the 1980s in the United States has generated a substantial increase in saving by the top of the income distribution, which we call the saving glut of the rich. The saving glut of the rich has been as large as the global saving glut, and it has not been associated with an increase in investment. Instead, the saving glut of the rich has been linked to the substantial dissaving and large accumulation of debt by the non-rich. Analysis using variation across states shows that the rise in top income shares can explain almost all of the accumulation of household debt held as a financial asset by the household sector. Since the Great Recession, the saving glut of the rich has been financing government deficits to a greater degree.","PeriodicalId":176300,"journal":{"name":"Microeconomics: Intertemporal Consumer Choice & Savings eJournal","volume":"22 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129472915","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
PurposeThis paper proposes and models stock loan lotteries, a financial innovation that improves individual investor welfare. Stock loan lotteries are prize-linked payoffs using securities lending fees.Design/methodology/approachThis paper solves an existing theoretical model for an investor's utility-maximizing choices with and without stock loan lotteries and compares outcomes.FindingsStock loan lotteries motivate prospect theory investors to buy and hold risky assets with high expected returns. Stock loan lotteries improve welfare more for poor investors and improve welfare more in a model with market frictions such as trading costs.Social implicationsStock loan lotteries increase household savings, leading to greater financial wealth and security in retirement.Originality/valueThis paper proposes a new financial product that improves financial outcomes for individual investors.
{"title":"Stock Loan Lotteries and Individual Investor Welfare","authors":"Jordan Moore","doi":"10.2139/ssrn.3562536","DOIUrl":"https://doi.org/10.2139/ssrn.3562536","url":null,"abstract":"PurposeThis paper proposes and models stock loan lotteries, a financial innovation that improves individual investor welfare. Stock loan lotteries are prize-linked payoffs using securities lending fees.Design/methodology/approachThis paper solves an existing theoretical model for an investor's utility-maximizing choices with and without stock loan lotteries and compares outcomes.FindingsStock loan lotteries motivate prospect theory investors to buy and hold risky assets with high expected returns. Stock loan lotteries improve welfare more for poor investors and improve welfare more in a model with market frictions such as trading costs.Social implicationsStock loan lotteries increase household savings, leading to greater financial wealth and security in retirement.Originality/valueThis paper proposes a new financial product that improves financial outcomes for individual investors.","PeriodicalId":176300,"journal":{"name":"Microeconomics: Intertemporal Consumer Choice & Savings eJournal","volume":"68 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-03-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126797956","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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