Essay on Oppo

8969 Words Jan 4th, 2015 36 Pages
2012-2013

PAWNSHOPS AND BEHAVIORAL ECONOMICS

193

PAWNSHOPS, BEHAVIORAL ECONOMICS, AND SELF-REGULATION SUSAN PAYNE CARTER* AND PAIGE MARTA SKIBA** I. Introduction

Pawnbroking is the oldest source of credit.1 There is growing public interest in day-to-day pawnbroking operations, as evidenced by the popularity of reality shows such as “Pawn Stars” and “Hardcore Pawn.”2 Television viewers’ curiosity about an old credit institution may be due to the fact that 7% of all U.S. households have used pawn credit.3 Although pawnshops predate biblical times, researchers know surprisingly little about this ancient form of banking and its customers.4 We fill this gap by documenting detailed information on pawnshop loan repayment and
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Law and Econ. Research Paper Series, Paper No. 12–26, 2012), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2149575. 4 Id. 5 Customers can also sell items outright to the pawnshop, a practice we do not study here.
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194

REVIEW OF BANKING & FINANCIALLAW

Vol. 32

to 25%.6 If the borrower does not return to repay the principal plus interest after the maturation date (typically loans last 30–90 days), the pledge is forfeited and resold by the pawnbroker. Just about anyone can borrow on a pawn loan. No bank account, job, or credit check is required—just the collateral and a valid photo ID. We are able to study pawnshop-borrowing behavior in depth using a unique transaction dataset from a lender in Texas with 103 stores in 37 different cities across the state. Our dataset comes from “pawnslips,” which are filled out by the pawnbroker at the time of the transaction and include information on the collateral or “pledge,” start date and due date, repayment outcomes, and borrower demographic characteristics. We study the nature of the collateralized pledge separately, distinguishing items that might have intrinsic value to the owner that goes beyond the dollar value of the item, i.e., sentimental value. We find that borrowers are more likely to return to repay their pawnshop loan when they have pawned a sentimental item, such as a piece of jewelry. We discuss

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