Consumer Default and the Life Cycle Model
This paper studies the impact of a default option on life-cycle consumption. Using a two period life-cycle model with uncertain income, the paper demonstrates that a default option causes a kink in both the budget set and the indifference curve at the point where the individual switches from saving to borrowing. This nonconvexity can have a dramatic impact on optimal consumption. The paper also explores the circumstances under which liquidity constraints are likely to emerge and the characteristics of those borrowers who are likely to face constraints. Copyright 1995 by Ohio State University Press.
If you experience problems downloading a file, check if you have the proper application to view it first. 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 27 (1995)
Issue (Month): 4 (November)
|Contact details of provider:|| Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879|