IDEAS home Printed from https://ideas.repec.org/p/hep/macppr/200705.html
   My bibliography  Save this paper

Default Option, Risk-Aversion and Household Borrowing Behaviour

Author

Listed:
  • Ingrid Groessl

    (Department for Economics and Politics, University of Hamburg)

  • Ulrich Fritsche

    (Department for Economics and Politics, University of Hamburg, and DIW Berlin)

Abstract

Assuming a risk-neutral bank and assuming household utility to be exponential, we show how under information symmetry the covariance of income and loan repayments may explain higher household borrowings than in the case without default option. Under ex post information asymmetry and positive control costs, the result is less clear-cut. We also make evident that in a situation in which a household without default option would neither borrow nor save, the existence of a default option makes household borrowing behaviour unpredictable.

Suggested Citation

  • Ingrid Groessl & Ulrich Fritsche, 2007. "Default Option, Risk-Aversion and Household Borrowing Behaviour," Macroeconomics and Finance Series 200705, University of Hamburg, Department of Socioeconomics.
  • Handle: RePEc:hep:macppr:200705
    as

    Download full text from publisher

    File URL: https://www.wiso.uni-hamburg.de/repec/hepdoc/macppr_5_2007.pdf
    File Function: First version, 2007
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ingrid Groessl & Artur Tarassow, 2015. "A Microfounded Model of Money Demand Under Uncertainty, and some Empirical Evidence," Macroeconomics and Finance Series 201504, University of Hamburg, Department of Socioeconomics, revised Jan 2018.

    More about this item

    Keywords

    Consumption; exponential utility; certainty equivalent; households; default option; borrowing; risk; risk aversion; risk management;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hep:macppr:200705. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ulrich Fritsche (email available below). General contact details of provider: https://edirc.repec.org/data/dwuhhde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.