This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

A Quantitative Theory of Unsecured Consumer Credit with Risk of Default

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Satyajit Chatterjee (Federal Reserve Bank of Philadelphia)
Dean Corbae (University of Texas)
Makoto Nakajima (University of Pennsylvania)
Jose-Victor Rios-Rull (University of Pennsylvania and CAERP)

Additional information is available for the following registered author(s):

Abstract

We study, theoretically and quantitatively, the equilibrium of an unsecured consumer credit industry where credit-suppliers take deposits at a given interest rate and offer loans to households via a menu of credit levels and associated interest rates. The loan industry is competitive, with free entry and zero costs, and borrowers have a default option that resembles, in process and consequence, a bankruptcy filing under Chapter 7 of the U.S. Bankruptcy Code. We show existence of a competitive equilibrium for such a loan industry and we characterize when and if a household defaults on its loans. We map the theory to the data in such a way as to account precisely for the quantitative properties of the facts regarding bankruptcy and unsecured credit (the volume of unsecured debt, the fraction of borrowers in the market, and the percentage of defaulters). We address the implications of a policy change that eliminates the Chapter 7 bankruptcy option for households with median or above-median income (a proposal with similar features is currently under consideration in Congress). We find that the welfare gain from this policy experiment is substantial, being equivalent to a lump-sum transfer payment of about one-quarter of average annual U.S. earnings.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.ssc.upenn.edu/~vr0j/papers/cdmv2.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Centro de Altisimos Estudios Rios Perez (CAERP) in its series Centro de Alti­simos Estudios Ri­os Pe©rez(CAERP) with number 2.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 60 pages
Date of creation: Mar 2002
Date of revision:
Handle: RePEc:cae:caerpp:2

Contact details of provider:
Postal: Calle P�rez de Rosas 4, Santa Cruz de Tenerife 38004
Web page: http://www.caerp.com/
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Jose-Victor Rios-Rull).

Related research
Keywords:

Other versions of this item:

This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Igor Livshits & James MacGee & Michele Tertilt, 2003. "Consumer bankruptcy: a fresh start," Working Papers 617, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  2. Kocherlakota, Narayana R, 1996. "Implications of Efficient Risk Sharing without Commitment," Review of Economic Studies, Blackwell Publishing, vol. 63(4), pages 595-609, October. [Downloadable!] (restricted)
  3. Hopenhayn, Hugo A & Prescott, Edward C, 1992. "Stochastic Monotonicity and Stationary Distributions for Dynamic Economies," Econometrica, Econometric Society, vol. 60(6), pages 1387-406, November. [Downloadable!] (restricted)
  4. Timothy J. Kehoe & David K. Levine, 2000. "Liquidity Constrained vs. Debt Constrained Markets," Levine's Working Paper Archive 14, David K. Levine. [Downloadable!]
  5. Pradeep Dubey & John Geanakoplos & Martin Shubik, 1988. "Default and Efficiency in a General Equilibrium Model with Incomplete Markets," Cowles Foundation Discussion Papers 879R, Cowles Foundation, Yale University, revised Feb 1989. [Downloadable!]
  6. Per Krusell & Anthony A. Smith & Jr., 1998. "Income and Wealth Heterogeneity in the Macroeconomy," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 867-896, October. [Downloadable!] (restricted)
    Other versions:
  7. Deaton, Angus, 1991. "Saving and Liquidity Constraints," Econometrica, Econometric Society, vol. 59(5), pages 1221-48, September. [Downloadable!] (restricted)
    Other versions:
  8. David B. Gross & Nicholas S. Souleles, 2002. "Do Liquidity Constraints And Interest Rates Matter For Consumer Behavior? Evidence From Credit Card Data," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 149-185, February. [Downloadable!] (restricted)
    Other versions:
  9. S. Rao Aiyagari, 1993. "Uninsured idiosyncratic risk and aggregate saving," Working Papers 502, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  10. Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 953-969. [Downloadable!] (restricted)
  11. William R. Zame, 1992. "Efficiency and the Role of Default When Security Markets are Incomplete," UCLA Economics Working Papers 673, UCLA Department of Economics. [Downloadable!]
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.
Statistics
Access and download statistics

Did you know? You can create your own reading lists on IDEAS.

This page was last updated on 2009-10-29.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.