with Jan Schmitz & Christian Zehnder

Journal of Money, Credit and Banking, 2024

We report data from a laboratory experiment studying the behavioral mechanisms which contribute to the increase in strategic defaults during an economic crisis. In our experiment, subjects can default on an outstanding loan, but moral constraints and social norm enforcement may provide incentives to repay. We exogenously vary the state of the economy: In the weak economy more borrowers are forced to default than in the strong. Our data reveal two main effects of an economic contraction: First, weak economic conditions seem to soften moral constraints as solvent debtors strategically default more often. Second, weak economic conditions undermine social norm enforcement. The decrease in norm enforcement, however, is not caused by a break-down of the repayment norm itself, but rather is a consequence of the additional informational uncertainty in weak economic conditions. In a weak economy peers are reluctant to sanction, because the risk of harming innocent debtors is higher. 

with Jan Schmitz & Christian Zehnder

Journal of Economic Behavior & Organization, 2024

We study the impact of pre-contractual communication on market outcomes when economic relationships are subject to hidden action. Our experiment is framed in a credit market context and borrowers (second movers) can communicate with lenders (first movers) prior to entering the credit relationship. Communication reduces moral hazard (strategic default) and increases trust (credit provision) in an environment where opportunistic behavior by borrowers is revealed ex-post to lenders. By contrast, in an environment where strategic defaults are hidden behind a veil of uncertainty, we find a substantially weaker impact of communication. Borrowers are more likely to renege on repayment promises when they can hide opportunistic behavior from lenders. As a consequence, lenders extend less credit to borrowers who promise to repay. Hidden action undermines the positive effect of communication on market outcomes. Our findings have implications for the design of contracts and how to structure relationships with a risk of hidden action: for precontractual communication to unfold its full potential it needs to go hand-in-hand with post-contractual monitoring. 

with N. Hentschel, H. Mettler & H. Stix

Journal of Monetary Economics, 2022

How does the improved convenience of electronic payments affect consumer payment choice and cash demand? We study the staggered, quasi-random introduction of contactless debit cards by a retail bank. We use account-level data and compare transactions which are eligible for contactless authentication to transactions which are not. We identify a significant convenience effect on debit card use at the intensive margin. The convenience elasticity is strongest among younger clients. Treatment effects increase over time, coinciding with increasing merchant acceptance. The effect on cash demand is economically small and statistically insignificant. We also find no effect on consumer spending.