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A Quantitative Theory of Information and Unsecured Credit

  • Kartik Athreya
  • Xuan S. Tam
  • Eric R. Young

Important changes have occurred in unsecured credit markets over the past three decades. Most prominently, there have been large increases in aggregate consumer debt, the personal bankruptcy rate, the size of bankruptcies, the dispersion of interest rates paid by borrowers, and the relative discount received by those with good credit ratings. We find that improvements in information available to lenders on household-level costs of bankruptcy can account for a significant fraction of what has been observed. The ex ante welfare gains from better information are positive but small. (JEL D14, D82, G21)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mac.4.3.153
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Article provided by American Economic Association in its journal American Economic Journal: Macroeconomics.

Volume (Year): 4 (2012)
Issue (Month): 3 (July)
Pages: 153-83

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Handle: RePEc:aea:aejmac:v:4:y:2012:i:3:p:153-83
Note: DOI: 10.1257/mac.4.3.153
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  18. Satyajit Chatterjee & Dean Corbae & Jose-Victor Rios-Rull, 2006. "Finite-Life, Private-Information Theory of Unsecured Debt," 2006 Meeting Papers 781, Society for Economic Dynamics.
  19. Athreya, Kartik B., 2002. "Welfare implications of the Bankruptcy Reform Act of 1999," Journal of Monetary Economics, Elsevier, vol. 49(8), pages 1567-1595, November.
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