Explaining Adoption and Use of Payment Instruments by U.S. Consumers

The way that consumers make payments is changing rapidly and attracts important current policy interest. This paper develops and estimates a structural model of adoption and use of payment instruments by U.S. consumers. We utilize a cross-section from the Survey of Consumer Payment Choice, a new survey of consumer behavior. We evaluate substitution and income effects. Our simulations shed light on consumer response to the recent government interventions into payment markets. ∗We thank Wilko Bolt, Beth Kiser, Ariel Pakes and Bob Triest for insightful comments on the paper. We also thank Mingli Chen, Vikram Jambulapati, Sarojini Rao, and Hanbing Zhang for excellent research assistance. The views presented here are those of the authors only and do not necessarily represent the views of the Federal Reserve Bank of Boston or the Federal Reserve System.