Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/81382
Authors: 
Almenberg, Johan
Karapetyan, Artashes
Year of Publication: 
2009
Series/Report no.: 
IFN Working Paper 798
Abstract: 
We use a survey to identify a consumer bias with regard to different sources of debt-financing. Less salient debt may generate psychological benefits. This should be weighed against the possible economic costs of a sub-optimal capital structure; but low levels of financial literacy make it unlikely that all households perceive the full economic costs. As a result there is a bias in favour of less salient debt. In a market with limited scope for arbitrage this consumer bias is likely to generate inefficiencies. We examine such a market in both theory and practice. The predictions of our model are given strong support by market data.
Subjects: 
Household Finance
Mental Accounting
Co-op
Capital Structure
JEL: 
D12
G14
G21
G32
Document Type: 
Working Paper

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