Essays on the individual in financial decision making.

Abstract

Three essays investigate individual decision making and the economic consequences. My first essay, Payday Lenders: Heroes or Villains?, asks whether the existence of payday lenders generates social welfare gains for individuals facing personal financial distress. To identify the effect, I look at community outcomes following natural disasters. I find evidence consistently supportive of positive welfare benefits (in terms of foreclosures, birth, and drug and alcohol abuse) from having a market provision of financing for distress times. My results suggest that contrary to current media consensus, the existence of high-interest consumer loans can be welfare-improving, even at high interest rates. My second essay, Patriotism in Your Portfolio, investigates another individual portfolio decision, namely, whether patriotism causes individuals to over-weight their portfolios to domestic equity investments. The results show that countries with more patriotic residents have a greater home bias in the aggregate country portfolio. The final essay, Are Elite Universities Losing Their Competitive Edge?, studies the role of location in knowledge-based production. Using a selection model whereby individuals choose where to locate, the evidence shows that improvements in communication technology have redefined the role of organizational boundaries. Spillovers from knowledge sharing no longer depend on the co-location of individuals.