UC Berkeley

This dissertation seeks to understand what components of household finance are important to consumers. In the first two chapters, we study a natural experiment in Chile where the government introduced legislation to increase financial transparency. In particular, the legislation required banks to include fees in the interest rate and later to provide a standardized presentation of their loan terms. Using administrative data on the universe of consumer loans in Chile, we use a regression discontinuity design to estimate the effect of this transparency reform on loan interest rates. We find that consumers are 50% less likely to default and 100% less likely to be delinquent on their loans. Further, we find that less sophisticated consumers benefited more from transparency legislation that communicated less information than legislation that presented more comprehensive information about their loans. We expand these findings and develop a dynamic structural model in order to explore the link between reduced informational frictions, price-sensitivity in consumer decisions, and welfare in long-term market equilibrium. We find that, after the policy, information frictions fell around 10 percent, which translated into an interest reduction of 180 basis points. We estimate a welfare improvement for consumers of 15 percent in the long run. The last chapter uses tuition freezes on public schools in six states to examine nonprofit universities' tuition reactions to this imposed constraint on their competitor public school. Evidence from both an event study and an instrumental variables approach shows that non-profit universities do not change their prices in response to tuition freezes by comparable public schools. In contrast, for-profit universities decrease their prices by roughly $1,000. This suggests that competition between universities puts downward pressure on prices for for-profit schools but not nonprofit schools. This suggests that an important component of household spending, human capital accumulation, may become increasingly out of reach for households as few determinants cause tuition to go down.