Evaluating a Method for Measuring Credit Constraints
An economic research team plans to measure the extent of credit market exclusion in a developing country by directly surveying households. They will ask questions like, 'Have you been denied a loan in the past year?' and 'If you applied for a loan today, do you believe you would be approved?'. Critically evaluate this survey-based approach. In your response, discuss at least one major strength and two potential weaknesses of this methodology for accurately estimating the prevalence of credit constraints.
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CORE Econ
Economics
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Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
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Data Source and Methodology for Figure 9.15
Limitations of Survey Data for Assessing Credit Constraints
An economist is designing a survey to measure the prevalence of credit constraints in a population. One proposed question is: 'If you needed to borrow $5,000 for an emergency, do you think a bank would approve your loan application?' Which of the following represents the most significant analytical weakness of using responses to this question to determine if someone is credit constrained?
Evaluating a Method for Measuring Credit Constraints
Estimating Credit Constraints from Survey Data
A survey finding that 10% of the population was denied a loan in the last year fully captures the extent of credit constraints in that economy.
A team of economists is using a survey to understand why people may not have access to credit. Match each survey question to the specific type of credit market limitation it is designed to identify.
Designing a Survey Question for Credit Constraints
A survey designed to measure the extent of credit market limitations in a country asks two separate questions:
- 'In the past 12 months, did you apply for a loan and have your application rejected?'
- 'In the past 12 months, was there a time you needed a loan but chose not to apply because you believed your application would be rejected?' The survey finds that 6% of respondents answered 'Yes' to the first question, and 9% of respondents answered 'Yes' to the second question. Assuming no respondent answered 'Yes' to both questions, what is the most reasonable estimate of the percentage of the population that is credit constrained based on this data?
Critiquing a Survey Methodology for Credit Constraints
Evaluating Survey Question Design for Credit Constraints
A national survey on household finance provides the following data for a country:
- 15% of households applied for credit in the past 12 months.
- Of the households that applied for credit, one-third were denied.
- An additional 10% of all households reported that they needed credit but did not apply because they believed their application would be denied.
Based solely on this information, what is the most accurate estimate of the percentage of households in this country that are credit constrained?