How does household finance affect the political process? In this paper, I focus on one particular channel of influence and ask if financially distressed homeowners are more or less likely to participate in elections. To address this question, I merge deeds records with voter rolls to create a novel panel dataset, and then use a difference-in-differences design that compares initially highly leveraged homeowners to their equity rich neighbors and exploits variation in house price declines during the recession. I find that, for highly leveraged homeowners, a ten percent decline in local house prices decreases voter participation by two percentage points. Furthermore, the effects of financial distress are particularly severe for homeowners that live more than one mile from their polling place, consistent with a resource constraints channel. Back of the envelope calculations suggest that mortgage distress can explain approximately 500,000 abstentions in the 2012 general election.
We present new evidence on the causal nature of social interaction effects and the channels along which they operate by studying one of the largest and most consequential sets of financial decisions households make: their mortgage choices. We precisely geolocate more than one million mortgage choices and use a nearest-neighbor research design to find that households’ refinance, lender, and loan type choices are all peer influenced by their hyperlocal neighbors, i.e., those neighbors with whom they are most likely to interact frequently. Our results are robust to the inclusion of borrower and property control variables and time, geography, and lender fixed effects. Consistent with a word-of-mouth channel, movers to new areas and nonoccupant owners show little evidence of social influence. These same movers, though, make similar choices to their hyperlocal neighbors when refinancing, after social interactions have had time to occur. Households who ought to refinance are five times more strongly affected by peer refinances than households who ought not to.
Hospital Financial Health and Clinical Choices: Evidence from the Financial Crisis (with Manuel Adelino and Katharina Lewellen)
Financial constraints can cause firms to reduce product quality when quality is difficult to observe. We test this hypothesis in the context of medical choices at hospitals. Using heart attacks and child deliveries, we ask whether hospitals shift towards more profitable treatment options after a financial shock—the 2008 financial crisis—and whether the shock worsens patient outcomes. The crisis caused an unprecedented drop in hospital investments, yet we find no overall effects on treatment choices and weak effects on patient outcomes. The results are similar for for-profits and nonprofits, and somewhat stronger for hospitals with more tightly integrated physicians.
Works in Progress
‘Sort Selling’: Local Politics and Homebuying
Political identity has increased in salience and importance in recent decades and people affiliated with one political party are increasingly hostile towards members of the opposite party. How do these trends affect household finance? I create a novel dataset that matches registered voters and their political affiliations to their mortgage decisions. I find that households in the political minority on their census block are 20% more likely to move away than their in-the-majority neighbors. And, when moving, sell their homes for an average of 4%, or $8,000, less. Furthermore, they largely move locally to blocks where their political views are more common. To confirm the causal nature of the relationship, I compare households on the block that got new next-door neighbors in the opposite party to other households on the block who did not get new next-door neighbors, and to other households on the block who got new next-door neighbors in the same party. My results help explain the increasing polarization of the electorate and, by demonstrating that households pay a large cost to live near co-partisans, provide new evidence on how households make important financial decisions.