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| Author: | Fusaro, M.A. Ericson, R.E. |
| Title: | The welfare economics of "bounce protection" programs |
| Journal: | Journal of Consumer Policy
2010 : MAR, VOL 33:1, p. 55-73 |
| Index terms: | banks welfare economics consumers |
| Freeterms: | overdraft |
| Language: | eng |
| Abstract: | Bounce protection is a new practice whereby banks pay rather than bouncing "bad" checks. This study applies welfare economic analysis to analyze the impact of bounce protection on all parties to the transaction. These parties are banks, payers and payees. Revealed preference analysis under standard rationality assumptions shows that when a bad check has been written, bounce protection is a welfare-enhancing policy. It is argued that this result is still likely to hold when the analysis is extended to incorporate various behavioral anomalies. In addition, other results from empirical research are cited to quantify some of the key impacts of bounce protection that this study predicts. |
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