Professor Alessandro Gavazza, London School of Economics
We build a framework to understand the effects of regulatory interventions in credit markets, such as caps on interest rates and higher compliance costs for lenders. We focus on the credit card market, in which we observe a large dispersion of interest rates at which US consumers borrow.
Our framework includes two main features that may explain this dispersion: endogenous search effort/inattention and product differentiation. Our calibration suggests that low search effort accounts for almost all the dispersion in interest rates, whereas product differentiation is negligible.
The calibrated model implies that price caps may curb lenders’ market power, but may also reduce borrowers’ search effort, with potentially ambiguous aggregate welfare effects.
Speaker bio
Alessandro Gavazza is Professor of Economics at the London School of Economics and Research Fellow of the Centre for Economic Policy Research. He is an applied economist, with main interests in industrial organisation.
His research focuses on the role of frictions in markets and it has been published, among other journals, in Econometrica, the American Economic Review, the Journal of Political Economy, and the Review of Economic Studies.
He is a member of the Editorial Board of the Review of Economic Studies and a member of the Board of Editors of the American Economic Journal: Applied Economics. He was one of the co-editors of the Journal of Industrial Economics from 2013 to 2018.
He received his PhD in Economics from New York University in 2005.
Event timings
Date:
6 March 2019
Start Time:
12:30
End Time:
14:00