[We study the effects of physical distance on the acquisition and use of private information in informationally opaque credit markets. Using a unique data set of all loan applications by small firms to a large bank, we show that borrower proximity facilitates the collection of soft information, leading to a trade-off in the availability and pricing of credit, which is more readily accessible to nearby firms albeit at higher interest rates ceteris paribus. Analyzing loan rates and firms' decision to switch lenders provides further evidence for banks' strategic use of private information. However, distance erodes our lender's ability to collect proprietary intelligence and to carve out local captive markets, suggesting that the requisite soft information is primarily local.]

[This paper investigates the role of ethnic matching between buyers and sellers in Singapore’s public housing market. We find that sellers sell homes in blocks with a high concentration of their own (other) ethnic group (s) at significant premiums (discounts). Chinese sellers earn 1.7% higher premiums when selling homes to Chinese buyers in high Chinese concentrations housing blocks, but Malay sellers accept 1.6% discounts from Malay buyers in the same blocks. We find that the high volume of within-ethnicity transactions with the price discounts is supported by the ethnic social networks, that is, through ethnicity-specialized real estate agents.]

We study the effects of physical distance on the acquisition and use of private information in informationally opaque credit markets. Using a unique data set of all loan applications by small firms to a large bank, we show that borrower proximity facilitates the collection of soft information, leading to a trade-off in the availability and pricing of credit, which is more readily accessible to nearby firms albeit at higher interest rates ceteris paribus. Analyzing loan rates and firms’ decision to switch lenders provides further evidence for banks’ strategic use of private information. However, distance erodes our lender’s ability to collect proprietary intelligence and to carve out local captive markets, suggesting that the requisite soft information is primarily local.

We examine whether relative income differences among peers can generate financial distress. Using lottery winnings as plausibly exogenous variations in the relative income of peers, we find that the dollar magnitude of a lottery win of one neighbor increases subsequent borrowing and bankruptcies among other neighbors. We also examine which factors may mitigate lenders’ bankruptcy risk in these neighborhoods. We show that bankruptcy filers obtain more secured, but not unsecured, debt, and lenders provide additional credit to low-risk, but not high-risk, debtors. In addition, we find evidence consistent with local lenders taking advantage of soft information to mitigate credit risk. Received October 12, 2016; editorial decision January 15, 2019 by Editor Philip Strahan.

Does financing respond to changes in productive opportunities, even for the world’s poor? We answer this question by examining the response of private bank financing to an infrastructure program that brought road access to unconnected Indian villages. This program prioritized roads for villages above specific population thresholds, allowing us to exploit the resultant discontinuities for identification. Using detailed data from a large bank, we find that 75% more villagers get loans, and the average amount lent to them is 30%–35% higher, in villages just above these thresholds. District-level analyses further suggest that roads and loans are complements in the growth process.

Using account-level credit card data from a large Turkish bank, we study the impact of a unique credit card policy that increases minimum payment on consumption and debt repayment. We show that the policy reduces credit card spending and debt, boosts existing debt repayment, and reduces credit card delinquency. The credit card debt of affected consumers falls on average by 50% two years into the policy’s implementation. An increase in minimum payment has a stronger effect than does a decrease of a similar magnitude. We build a benchmark life cycle model with soft liquidity constraint to explain the reduction in credit card spending.

We study how consumer spending responds to digital payments, using the differential switch to digital payments across consumers induced by the sudden 2016 Indian Demonetization for identification. Digital payment use rose by 2.94 percentage points and monthly spending increased by 2.38% for an additional 10 percentage points in prior cash dependence. Spending remained elevated even when cash availability recovered. Robustness analyses show that the spending response is not driven by purchase substitution, income shocks, credit supply, or price changes. We provide causal evidence that digital payments increase consumer spending due to subdued endowment effects.

This paper investigates the role of ethnic matching between buyers and sellers in Singapore’s public housing market. We find that sellers sell homes in blocks with a high concentration of their own (other) ethnic group(s) at significant premiums (discounts). Chinese sellers earn 1.7% higher premiums when selling homes to Chinese buyers in high Chinese concentrations housing blocks, but Malay sellers accept 1.6% discounts from Malay buyers in the same blocks. We find that the high volume of within-ethnicity transactions with the price discounts is supported by the ethnic social networks, that is, through ethnicity-specialized real estate agents. Received May 3, 2017; editorial decision July 4, 2018 by Editor Stijn Van Nieuwerburgh.