COVID-19 has changed behaviors of individuals as consumers, employees, or business owners in many aspects. Due to the concerns of public health from COVID-19, most governments have imposed measures to limit the spread this virus to their citizens, such as state and community-level lock down in the U.S, contact-tracing in S. Korea, national level lown down in Newzealand. These measures and fears of COVID-19 among consumers have changed the ways of consumers spend and consequence on local business owners (e.g., Argente et al., 2020 and Baker et al., 2020). S. Korea is not an execption. The overall economy of S. Korea are negatively affected by COVID-19 (Kirk, 2020), and even small business owners (Shin, 2020).
To alleviate this economic hardship on individuals and local business owners, the Ministry of Interior and Safety of S. Korea, and metroplitian city and state governments have launched stimulus payment programs to provide funds to all households (by the centerl government) or targeted housholds (local governments) under which the payments can only be used to specific stores and sectors.
This paper empirically estimate the effect of these stimulus payments and spillover effects on local business owners.
This paper is unique in three aspects. First, even though there is growning literature that have examined changes of consumer behaviors and the effect of stimulus payments on consumer behaviors during the pandemic or idosycratic shocks in the US, this paper would be one of the firs papers that captures comprehensive payements (covering 99.5% of the households in S. Korea) targeting for local small business (excluding big gerocery marts, online shoppoing malles, and etc.).
Second, using consumer spendings at local markets in Seoul, a metroploitan city, we measure the spillover of the changes in consumer spending on restaurants, at leaset at some aggregated levels.
[I am not sure if the following is possible] Third, with some assumptions on average consumption behaviors, we use a structure model of the demand for eating out.
Korean governement and Seoul Metropolitan Goverment have provided stimulus payments to most citizens in Seoul, Korea.
Unlike the stimulus payments in the U.S. (initiated by the 2020 CARES act), these stimulus payments target on the increase of consumption and its spillover effects on small business owners. There are several restrictions on the usage of these stimulus payments. These restrictiion will be discussed below.
The officeical name of this stimulus payment is “Korean Emergency Relief Funds.” This is a primalry focus.
The Korean Government provides emergency relief funds to almost all households in S. Korea (99.5% of households).
Application for the stimulus payments by Korean governement were open from May 11 to June 5, 2020. Once applicants receives their payments, they were able to use the funds by the end of August. After then, unused funds would be donated to other subsidy programs for those who are in hardship during the period of COVID-19.
Depending on the number of the members of households, the amount of the payments varies.
| Number of Members in Household | 1 | 2 | 3 | 4 |
|---|---|---|---|---|
| Amount (KRW) | 400,000 | 600,000 | 800,000 | 1,000,000 |
| Amount (USD) | 348.74 | 523.10 | 697.47 | 871.84 |
Two forms of the KG stimulus payments are provided
Gift certification: Local stores under the network of Zero Payment, the payment flotform that provides low expensices related to credit card transaction, mostly helping local small business owners. If individiuals choose this options, they will receive addition 10% of the funds that they receive.
Debit/Credit Cards: Most credit card firms provide stimulus payments to applicants’ credit cards or debit cards.
Pre-paid Credit cards: Applicants visits local community service centers and apply for this types of KG stimulus payments.
Even though the restrictions on the usage of KG stimulus payments vary on the forms of the payments, all the forms of the stimulus payements follows the following restriction:
| Sectors | Brands or Examples | Equvalant in the U.S |
|---|---|---|
| Supermarket | Homeplus, Emart | Stop & Shop, Walmarket |
| Department | Lottee, Hyundai | Marcy’s, Nordstorm |
| Online Transaction | Online shopingmall, Food delivery apps | Amazon, Uber Eat |
| Electroincs | HiMart, Samsung Digital Plaza | Best Buy |
| Entertainment | entertainment establishment | Clubs |
| Face-to-Face Service | Message, face-to-face service | Message, Nail Salon |
| Leisure | Golf, Golf practice, Screen golf, singing room | Golf, Mini Golf |
| Gaming | Casino, Lottery, Game Room | Casino, Lottery, Game room |
| Gift Certificate | Gift certificate store | |
| Jewerly | Jewerly | Jewerly |
| Tax and Fees | Governement, local tax, fees | governement, local tax, fees |
| Duty Free | Duty free stores | Duty free stores |
| Insurance | Life, National Pension, Health, Auto | Life, National Pension, Health, Auto |
| Auto-Transfer | Pubic Tranfortation, Telecommunication, other auto-transfer | Pubic Tranfortation, Telecommunication, other auto-transfer |
| Others | Adults, Gun Shop | Adults, Gun Shop |
Seoul Metroplitan Government provided stimulus payments for qualifying households in Seoul. The office name of this payment is “Seoul Metropolitan Government Emergency DisasterRelief Fund.”
Households whose annual incomse lower 100 % of the standard median incomes, the standard income that the Ministry of Health and Welfare sets up annually as a standard for welfare programs in Korea.
| Number of Members in Household | 1 | 2 | 3 | 4 | 5 | 6 |
|---|---|---|---|---|---|---|
| Monthly Income (KRW) | 1,757,194 | 2,991,980 | 3,870,577 | 4,749,174 | 5,627,771 | 6,506,368 |
| Monthly Income (USD) | 1531.99 | 2608.53 | 3374.52 | 4140.52 | 4906.51 | 5672.51 |
The application period for Seoul stimulus payment was from March 11 to May 15, 2020. The experation date is August 30, 2020.
| Number of Members in Household | 1~2 | 3~4 | over 5 |
|---|---|---|---|
| Amount (KRW) | 300,000 | 400,000 | 500,000 |
| Amount (USD) | 261.55 | 348.74 | 435.92 |
Two forms of this stimulus payments are 1) gift certificates, and 2) pre-paid credit cards. The details of those forms are the same as the above.
The same restrictions are applied to Seoul stimulus payments. One additional restriction is that individuals can only use their payments at relevant stores in Seoul.
This paper uses discrete choice models to analyze how stimulus payments during COVID-19 changes consumer behavior, related to eating out (either in stores or take-outs). The availability of data sets makes series of assumptions:
Check per one household: Resturant sales are measured by combined all checks related to credit card and cash transaction. It is possible that multiple individuals or households appear on a check. However, given the data sets, I cannot capture this.
Sales per check: Even though sales per check vary with bundles of food and drinks ordered, this measures how much consumer spend aaverage spending per transaction (per visit). In addition, this measure is widely used in the restaurant industry to measure consumer spending along with another measure, sales per cover (total sales dividied by the number of consumers at the resturants). This can be used as average prices for each resturant category.
We use the logit model to capture consumer decision to buy a restaurant meal. A baseline model is the following (Model 2) - Consumer \(i\) choose \(j (j=1, \cdots, J)\) at market \(m (m=1, \cdot, M)\) at time \(t(t=1,\cdots, 14)\):
\[ u_{ij}^{mt} = \alpha p_{j}^mt + X_{j}^{mt} \beta + \beta_y Y^{mt} + \xi_{j}^{mt} + \epsilon_{ij}^{mt} \]
where * \(p_j^{mt}\): Average spendings per check in restaurant category \(j\) * \(X_j\) includes the number of restuants for the restaurant category * \(Y^{mt}\) : the median incomes at the market level * \(\xi_j\): the unobserved product chacteristics for \(j\) * \(\epsilon\): the demand shock; it follows the Type I extreme value distribution.
To see how stimulus payments affect consumer behavior, we use a specification of \(y\) :
\[ Y^{mt} = y^{mt} + D_{sp}^mt \cdot sp \]
where \(y_{mt}\) represents the aveage income in market \(m\) at time \(t\), \(D_s\) is an indicator variables for stimulus payments, and \(sp\) is the average stimulus payments.
The average stimulus payments could be differ on consumers’ income(Seould stimulus payments target for those whose income is below the standard median income. We will add additional specification on income later.
Using Model 1, I crete alternative specifications:
Model 2: \[ u_{ij}^{mt} = \alpha \frac{p_{j}^mt}{Y^{mt}} + \beta X_{j}^{mt} + \beta_y Y^{mt} + \xi_{j}^{mt} + \epsilon_{ij}^{mt} \]
Model 3: Nest Logit \[ u_{ij}^{mt} = \alpha \frac{p_{j}^mt}{Y^{mt}} + \beta X_{j}^{mt} + \beta_y Y^{mt} + \xi_{j}^{mt} + (1-\sigma)\epsilon_{ij}^{mt} \]
Model 4: Random Coefficients
\[ u_{ij}^{mt} = \alpha_i p_{j}^mt + \beta X_{j}^{mt} + \xi_{j}^{mt} + \epsilon_{ij}^{mt} \]
where \(\alpha_i = \alpha + \sigma Y_i^{mt}\) and \(Y_i^{mt}\) follows the normal distribution.
Another effect of the stimulus payments is to help local business owners. This is indirect effects resulting from the increase in consumer spending due to the stimulus payments. To estimate the effect on local business owners, we can use either discrete choice models that captures the probility of exit or entry/exit models that consider an agent decision as well as other players’ decision (discrete games)).
To use the discrete choice model, we need to have infomation of individual owners’ decisions of exit from the market. However, this information is not available in our current data sets. Additional data collection would be required.
For entry/exit games(strategic interactions), we would use the early models of entry/exit models: Bresinhan and Ressis (1991, 1994) or Seim (2006). Since all firm information is aggregated to the restaurant category, it would be easier to start with the model of Bresnahan and Ressis (1991). With this model, we will estimate entry threshold.
However, except the Bresinhan and Ressis model, the information of entry/exit at the firm level is necessary. Thus, additional information will be needed.
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