Air pollution, cognitive capacity, and borrowing behaviours: evidence from an online peer-to-peer platform

Borrowing decisions typically involve processing large amounts of financial information. However, it has been understudied whether cognitive capacity factors such as air pollution affect borrowing behaviours. In this paper, we estimate the causal impact of air pollution on borrowing behaviours by using the universe of borrowing application data on an online peer-to-peer platform and a thermal inversion instrument. We find that a 1% increase in air pollution reduces the number of borrowing applications and the total amount requested by 0.05% and 0.31% respectively. The impact is stronger when the borrowing is for more complex and less necessary purposes, and when we examine the areas with lower educational attainment. The results suggest that the adverse effect of air pollution on cognitive capacity prevents people from borrowing.