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Essays in household finance and innovation

Matcham, William Oliver (2023) Essays in household finance and innovation. PhD thesis, London School of Economics and Political Science.

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Identification Number: 10.21953/lse.00004520


This thesis consists of two essays on household finance and one essay on innovation. Chapter 1 examines descriptively how UK credit card lenders set credit limits and interest rates for customers. First, I summarize the literature on credit card regulation and lenders’ choices of credit limits and interest rates. Second, I detail the relevant credit card regulation, focusing on how UK credit card lenders are required to advertize a “representative” interest rate for every credit card product they offer. Third, I describe my credit card dataset together with basic summary statistics. Finally, I offer a set of descriptive findings. My main results describe the limited variation in interest rates within credit card products relative to substantial variation in credit limits. In Chapter 2, I build on Chapter 1 by presenting and estimating an economic model of the UK credit card market. The modeling novelty is the link between individuals’ credit limits and lenders’ predictions of customers’ risk. With the estimated model, I examine a counterfactual scenario in which credit card lenders are subject to no costs and constraints in individualizing interest rates and credit limits, which the existing environment precludes. In this case, credit card lenders’ profits increase, consistent with lenders facing costs and constraints that discourage them from individualizing interest rates. In Chapter 3, we develop a dynamic structural model of patent screening incorporating incentives, intrinsic motivation, and multi-round negotiation. We use detailed data on examiner decisions and employ natural language processing to create a new measure of patent distance that enables us to study strategic decisions by applicants and examiners. We find that patent screening is moderately effective, given the existing standards for patentability. Examiners exhibit substantial intrinsic motivation that significantly improves the effectiveness of screening. A reform that limits negotiation rounds strongly increases screening quality. We quantify the annual net social costs of patent screening at $25.5bn, equivalent to 6.5% of U.S. private sector R&D.

Item Type: Thesis (PhD)
Additional Information: © 2023 William Oliver Matcham
Library of Congress subject classification: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
Sets: Departments > Economics
Supervisor: Gavazza, Alessandro and Schankerman, Mark

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