A Quantitative Theory of Information and Unsecured Credit

Athreya, Kartik B.; Tam, Xuan S.; Young, Eric

doi:10.1257/mac.4.3.153

Cited by 67 publications

(57 citation statements)

References 29 publications

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“…The use of IT to mitigate adverse selection in lending and its effect on the provision of risky unsecured credit has been analyzed by Athreya, Tam, and Young (2012); Narajabad (2012); Sanchez (2012); and Livshits, MacGee, and Tertilt (forthcoming). They look at a similar set of facts to the ones that we examine here.…”

Section: Related Literaturementioning

confidence: 99%

Modeling the Revolving Revolution: The Debt Collection Channel

Drozd

Serrano-Padial

2017

American Economic Review

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We investigate the role of information technology (IT) in the collection of delinquent consumer debt. We argue that the widespread adoption of IT by the debt collection industry in the 1990s contributed to the observed expansion of unsecured risky lending such as credit cards. Our model stresses the importance of delinquency and private information about borrower solvency. The prevalence of delinquency implies that the costs of debt collection must be borne by lenders to sustain incentives to repay debt. IT mitigates informational asymmetries, allowing lenders to concentrate collection efforts on delinquent borrowers who are more likely to repay. (JEL D14, D82, G21, L84, M15, O33)

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Section: Related Literaturementioning

confidence: 99%

Modeling the Revolving Revolution: The Debt Collection Channel

Drozd

Serrano-Padial

2017

American Economic Review

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“…Specially,  is defined as banks' belief function with respect to , d , b and , z which are information inaccessible to banks. We can then calculate the default probability and the conditional default probability Athreya, Tam, and Young 2012). In addition,…”

Section: Firms' Invariant Distributionsmentioning

confidence: 99%

“…The Bayesian equilibrium is defined under information asymmetry as in Athreya, Tam, and Young (2012). Athreya, Tam, and Young (2012) simultaneously analyze equilibrium without information asymmetry, but our study focuses on the optimal levels of financial support in equilibrium with imperfect information.…”

Section: Bayesian Equilibriummentioning

confidence: 99%

The Effects of Financial Support Policies on Corporate Decisions by SMEs

Nam¹

2016

kdijournalofeconomicpolicy

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“…Key landmarks in this category are Chaney and Thakor (1985), Smith and Stutzer (1989), Innes (1990), Gale (1990), and Williamson (1994). 6 Most of this work abstracts from the financing of their programs as well while, as noted above, these costs will feature prominently in our analysis.…”

Section: Introductionmentioning

confidence: 99%

“…8 Third, our focus on consumer credit under default risk in the latter kind of incomplete-market and Athreya, Tam, Young(2010, 2011. In this line of work, guarantees are not studied, but both 6 In related work, Lacker (1994) investigates whether adverse selection problems necessarily justify government intervention in credit markets. When cross-subsidization between private contracts is not feasible, intervention is generally welfare-improving.…”

Section: Introductionmentioning

confidence: 99%

Loan Guarantees for Consumer Credit Markets

2011

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Loan guarantees are arguably the most widely used policy intervention in credit markets, especially for consumers. This may be natural, as they have several features that, a priori, suggest that they might be particularly effective in improving allocations. However, despite this, little is actually known about the size of their effects on prices, allocations, and welfare.In this paper, we provide a quantitative assessment of loan guarantees, in the context of unsecured consumption loans. Our work is novel as it studies loan guarantees in a rich dynamic model where credit allocation is allowed to be affected by both limited commitment frictions and private information.Our findings suggest that consumer loan guarantees may be a powerful tool to alter allocations that, if carefully arranged, can improve welfare, sometimes significantly. Specifically, our key findings are that (i) under both symmetric and asymmetric information, guaranteeing small consumer loans nontrivially alters allocations, and strikingly, yields welfare improvements even after a key form of uncertainty-one's human capital level-has been realized, (ii) larger guarantees change allocations very significantly, but lower welfare, sometimes for all household-types, and (iii) substantial further gains are available when guarantees are restricted to households hit by large expenditure shocks. * We thank Larry Ausubel, Dean Corbae, Martin Gervais, Kevin Reffett, and participants in seminars at Arizona State, Georgia, Iowa, and the Consumer Credit and Bankruptcy Conference at the University of Cambridge for helpful comments and discussions. We also thank Brian Gaines and Jon Lecznar for assistance. The opinions expressed here are not necessarily those of the Federal Reserve Bank of Richmond or the Federal Reserve System.

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A Quantitative Theory of Information and Unsecured Credit

Cited by 67 publications

References 29 publications

Modeling the Revolving Revolution: The Debt Collection Channel

Modeling the Revolving Revolution: The Debt Collection Channel

The Effects of Financial Support Policies on Corporate Decisions by SMEs

Loan Guarantees for Consumer Credit Markets

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