Effects of Shoe-Leather Cost on Consumer Cash Withdrawal Behavior

Abstract This paper studies an empirical model of shoe-leather cost applied to consumer cash withdrawal. The unique feature is to estimate the effect of shoe-leather cost from the cash inventory model by filtering out free-type consumers who do not incur shoe-leather costs. When compared to the costly-type consumers, the free-type do not need to go out of their ways from home to visit banks to withdraw cash because they can economise their travel costs by combining withdrawals with other activities, such as, one-stop multi-purpose trip on either their ways to work or shopping. We find that the cash withdrawal frequency significantly decreases with the travel distance; otherwise the estimated shoe-leather cost without distinguishing between free- and costly-types is close to zero and insignificant. This finding suggests that in order to maintain cash accessibility, the policy need not only consider the supply of physical branch infrastructure, but also account for consumer’s travel pattern.