The Effect Of Information Acquisition On Household Debt

The family is the basic unit of human society,which has existed throughout the history of human being.Given that debt as a share of GDP could change macroeconomic performance and microeconomic welfare,household debt plays a fundamental role in the field of household finance and considerable studies interested in understanding the choice of debt have addressed the issue.Households could use debt to smooth consumption and investment,which will amplify aggregate welfare of individuals.On the other hand,high debt could induce and transmit financial shocks and affect macroeconomic stability and economic growth,so that understanding how to maximize the effectiveness of debt is crucial to improving financial service.What determines the choices of households for debt? A growing body of literature attempts to analyze the sources of debt and provides evidence on varying degrees of borrowing behavior.However,little attention has been paid to the role of information acquisition.In classical economic settings,agents make decisions in circumstances where information can be acquired completely and freely.Indeed,no one could make decision without unrestricted information and any agents have to face costs of acquiring information.So that decision was always made under situations with incomplete information.As a result,restricted information would impact borrowing choice while information acquisition is of great importance for determining financial decision.Given the vital impacts of information acquisition on household debt,a number of key questions arise and yet to be answered.First,preferences have been assumed to be constant in traditional economics,so that whether borrowing preferences will be affected by information,and how could information acquisition influence the choices of household debt? Second,do the effects of information acquisition on household borrowing vary with differing information channels? Third,can debt choices of households be affected by their peers?This dissertation consists of three parts.The first section uses statistical data to capture the features of information acquisition and household debt.The second section provides theoretical tools to understand the role of information.The third section contains empirical evidence regarding how information acquisition affects household debt.Using survey and statistical data,trends and structures of debts are documented.It is shown that the size of household debt increases steadily in most countries during the past decades while debt to income ratios change across nations.Households hold debt in a variety of ways,however,a very large portion of households tend to hold mortgage debt.Besides,information acquisition has different intensities across households,in which economic and financial information receives less attention of most Chinese households when make borrowing decision.After providing a brief review of theoretical literature on how individuals use information to make choices,the studies try to lay down theoretical foundations for information acquisition and household debt.It is possible for persons to change their borrowing preferences after the information shock occurs in the Bayesian model.This research highlights basic properties of the information cost that can determine the structure of the credit market.At last,the study sheds light on the peer effect of household debt based on the theory of informational cascade and keeping up with the Joneses and verifies the crowd-in and crowd-out effect of borrowing information of peers on debt.In the empirical section,this study provides evidence of the effects of information acquisition.Using two representative data sets of Chinese households,namely CHFS and CFPS,it shows that concerns on economic and financial information influence borrowing preferences of households,and the impacts vary with differing information channels.The findings indicate that information is crucial for borrowing decisions,and the ability to access to information improves the choice and use of debt.While the mechanisms are different for different information channels,the household with more economic and financial information will be more risk tolerant and have higher financial literacy.Furthermore,the empirical results suggest that borrowing activities among households? peers increase their likelihood of borrowing,which indicates that the peer effect exists in China.The effect is proved to be mediated by information channels.More precisely,the ability to access to internet mitigates the effect while the social interaction could act as a multiplier for household debt.The results of the dissertation find that the impact of information acquisition of household is shown to be a significant determinant of debt choice.The thesis shows that this can explain the phenomena of debt and contagion of default.The findings in this dissertation have important implications for theoretical studies both in information economics and household finance and credit practices.