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Rational exuberance at the mall: addiction to carrying a credit card balance

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Abstract:

The Becker-Murphy model of rational addiction is tested with New Zealand credit card debt data. The results clearly favour the rational addiction model over the myopic, backward-looking model. The estimated short-run and long-run price elasticities are -0.58 and -2.32 respectively, and the estimated rate of time-preference is 6.7% per quarter.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840500369167

Affiliations: Department of Economics, University of Victoria, Victoria, B.C., Canada, V8W 2Y2

Publication date: March 20, 2006

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