Fumiko Hayashi

Quantifying the Impacts of Limited Supply: The Case of Nursing Homes

This article develops a new estimation method that accounts for excess demand and the unobserved component of product quality. We apply our method to study the Wisconsin nursing home market in 1999 and find that nearly 20% of elderly qualified for Medicaid were rationed out. However, our counterfactual experiment shows that the net welfare gain of fulfilling all nursing home demands may be small, because the welfare gain could be largely offset by the increase in Medicaid expenditures. We also find that a 1% increase in quality would crowd out 3.2% Medicaid patients in binding nursing homes.

General Purpose Reloadable Prepaid Cards: Penetration, Use, Fees, and Fraud Risks

Prepaid cards are the most rapidly growing payment instrument. General purpose reloadable (GPR) prepaid cards, in particular, have gained considerable traction especially among the unbanked and underbanked. How these cards are used is now of acute interest to both policymakers, seeking to ensure broad access to electronic payment methods, consumer protection for prepaid cards, and payments system security, and to payment card industry participants, desiring to advance their product offerings and business models. This study examines the end-user experience of using a GPR card. It investigates which factors, if any, affect the intensity and duration of GPR card use, estimates the fee burden associated with various card usage patterns, and calculates fraud rates by transaction and merchant type. Because we lack cardholder information other than zip code, we supplement our card data with local demographic and socioeconomic data to test whether these factors are correlated with the observed variation in card use and incurred fees. Our results suggest that both account and local socio-demographic characteristics significantly influence the life span, the load and debit activities, the shares of purchase and cash withdrawals, and the average number and value of fees incurred per month, and that transaction and merchant types influence the rate of fraudulent transactions.

The Economics of Payment Card Fee Structure: What is the Optimal Balance between Merchant Fee and Payment Card Rewards?

This paper theoretically considers the optimal balance between the merchant fee and the cardholder fee (rewards) from both efficiency and equity perspectives. First, the paper constructs the models that can be used by the U.S. policymakers. Because theoretical results are very sensitive to the assumptions of the models, it is important to construct models that reflect the reality of the market. Second, the most efficient fee structure and product price are considered under the various combinations of the assumptions. And finally, the paper considers welfare consequences of the most efficient fee structure. ; Also issued as a Payments System Research Working Paper.

Nonbanks and Risk in Retail Payments: EU and U.S.

This chapter documents the importance of nonbanksin retail payments in the United States and in 15 European countries and analyses the implications of the importance and multiple roles played by nonbanks on retail payment risks. Nonbanks play multiple roles along the entire payment processing chain. They are prominent in the United States and their presence is high and growing in Europe as well, although there are differences among the various countries and payments classes. The presence of nonbanks has shifted the locus of risks in retail payments towards greater relevance of operational and fraud risk. The chapter reviews the main safeguards in place, and concludes that there may be a need to reconsider some of them in view of the growing role of nonbanks and of the global reach of risks in the electronic era.

The Economics of Payment Card Fee Structure: What Drives Payment Card Rewards?

This paper investigates potential market forces that cause payment card rewards even when providing payment card rewards is not the most efficient. Three factors-oligopolistic merchants, output-maximizing card networks, and the merchants inability to set different prices across payment methods-may potentially explain the prevalence of payment card rewards programs in the United States today. The paper also points out that competition among card networks may potentially make payment rewards too generous, and thus deteriorate social welfare and its distribution. The situation may potentially warrant public policy interventions. ; Also issued as a Payments System Research Working Paper.

Product Innovation and Network Survival in the U.S. ATM and Debit Card Industry

This paper studies product innovation and firm survival in the U.S. ATM/debit card industry. The industry started with a few shared ATM networks in the early 1970s. The number of networks grew quickly up until the mid 1980s, but then declined sharply. We construct a theoretical model based on Jovanovic and MacDonald (1994). In contrast to their model focusing on cost-saving technological innovation, our model shows a major product innovation may also trigger the shakeout. The theoretical predictions are tested using a novel dataset on network entry, exit, size, location, ownership and product choices. The findings suggest introducing the point of sale debit function in the mid 1980s played an important role driving the network consolidation. Unlike previous studies, we find little advantage of being early industry entrants. Rather, due to network effects in the industry, large networks had better chance to adopt the product innovation and survive the shakeout. ; Original title: Product innovation and firm survival in a network industry ; Also issued as a Payments System Research Working Paper

Faster Payments : Market Structure and Policy Considerations

The U.S. payments industry is in the process of developing ubiquitous, safe, faster electronic solutions for making a broad variety of business and personal payments. How this market for faster payments will evolve will be shaped by a range of economic forces, such as economies of scale and scope, network effects, switching costs, and product differentiation. Emerging technologies could alter these forces and lead to new organizational arrangements or market structures that are different from those in legacy payment markets to date. In light of this uncertainty, this paper examines three hypothetical market structures that may emerge: a dominant operator environment, a multi-operator environment, and a decentralized environment. Each of these market structures has different implications for the public policy objectives of efficiency, safety, and ubiquity. The paper also considers tools to promote positive outcomes in each market structure.

Faster Payments in the United States: How Can Private Sector Systems Achieve Public Policy Goals?

Consumers and businesses are increasingly expecting faster payments. While many countries have already developed or are in process of developing faster payments, the availability of these payments is fragmented in the United States. The recently released paper by the Federal Reserve encourages private sector participants to provide faster payment services. However, private-sector faster payments systems will face significant challenges in achieving public policy goals of ubiquity, safety, and efficiency unless system governance represents broad public interests. One way to better align private-sector interests with those of the public is for the Federal Reserve to influence governance of the private-sector systems through its leadership role.