The Information Technology Revolution and the Unsecured Credit Market

Sánchez, Juan M.

doi:10.1111/ecin.12519

Cited by 44 publications

(26 citation statements)

References 22 publications

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“…Given the high sensitivity of loan demand to loan terms (as estimated in credit cards by Gross andSouleles, 2002, andPonce et al, 2014), removing premia on interest rates could significantly increase investment in home energy retrofit. Our second contribution is more general and relates to the literature on unsecured credit market (Artheya et al, 2012, Sánchez, 2018, Crawford et al, 2018. We document an anomaly, namely systematic differences in the interest rates offered for renovation-and vehicle-backed loans, whereas the risks associated with each project should not particularly differ.…”

Section: Introductionmentioning

confidence: 62%

How Do Lenders Price Energy Efficiency? Evidence From Personal Consumption Loans

2019

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At least ex ante, energy efficiency improvements increase investor's solvency. Associated loans should therefore carry lower interest rates than do otherwise conventional loans. We test this hypothesis using unique weekly panel data on posted interest rates scraped from loan simulators made available online by French credit institutions during 2015-2016. On average, we find that lenders charged a green premium in 2015 but offered a green discount in 2016. We also find that, absent green attributes, interest rates are higher for home retrofit loans than for vehicle loans, which suggests that lenders use the loan purpose as a screening device of unobserved borrower characteristics. Our results together imply that loans for home energy renovation were consistently charged relatively high interest rates, with adverse consequences for scaling up home energy renovation.

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Section: Introductionmentioning

confidence: 62%

How Do Lenders Price Energy Efficiency? Evidence From Personal Consumption Loans

2019

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“…Relative to the 1970s, we consider many more credit card lenders, e.g., ∑ θ∈Θ N θ > N, and we allow for price discrimination by permanent earnings ability. These modifications are designed to capture the expansion of credit card networks and the rise of credit scoring, e.g., Drozd and Nosal (2008), Athreya, Tam, and Young (2012), Livshits et al (2016) and Sánchez (2018). Within each set of type-θ lenders, we consider both (i) Collusive-Cournot and (ii) Perfect Competition.…”

Section: Lender Competitionmentioning

confidence: 99%

Who Bears the Welfare Costs of Monopoly? The Case of the Credit Card Industry

Herkenhoff¹,

Raveendranathan²

2020

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How are the welfare costs from monopoly distributed across U.S. households? We answer this question for the U.S. credit card industry, which is highly concentrated, charges interest rates that are 3.4 to 8.8 percentage points above perfectly competitive pricing, and has repeatedly lost antitrust lawsuits. We depart from existing competitive models by integrating oligopolistic lenders into a heterogeneous agent, defaultable debt framework. Our model accounts for 20 to 50 percent of the spreads observed in the data. Welfare gains from competitive reforms in the 1970s are equivalent to a one-time transfer worth between 0.24 and 1.66 percent of GDP. Along the transition path, 93 percent of individuals are better off. Poor households benefit from increased consumption smoothing, while rich households benefit from higher general equilibrium interest rates on savings. Transitioning from 1970 to 2016 levels of competition yields welfare gains equivalent to a one-time transfer worth between 1.87 and 3.20 percent of GDP. Lastly, homogeneous interest rate caps in 2016 deliver limited welfare gains.JEL codes: D14, D43, D60, E21, E44, G21

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“…7 Other related papers which include an information problem include D'erasmo (2011), Narajabad (2012), Athreya et al (2012), Livshits et al (2016), Drozd and Serrano-Padial (2017), Luo (2017), Sanchez (2018), andNelson (2020).…”

Section: Environmentmentioning

confidence: 99%

A Quantitative Theory of the Credit Score

Chatterjee¹,

Corbae

Dempsey³

et al. 2020

Preprint

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What is the role of credit scores in credit markets? We argue that it is a stand in for a market assessment of a person's unobservable type (which here we take to be patience). We pose a model of persistent hidden types where observable actions shape the public assessment of a person's type via Bayesian updating. We show how dynamic reputation can incentivize repayment without monetary costs of default beyond the administrative cost of filing for bankruptcy. Importantly we show how an economy with credit scores implements the same equilibrium allocation. We estimate the model using both credit market data and the evolution of individual's credit scores. We find a 3% difference in patience in almost equally sized groups in the population with significant turnover and a shift towards becoming more patient with age. If tracking of individual credit actions is outlawed, the benefits of bankruptcy forgiveness are outweighed by the higher interest rates associated with lower incentives to repay.

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The Information Technology Revolution and the Unsecured Credit Market

Cited by 44 publications

References 22 publications

How Do Lenders Price Energy Efficiency? Evidence From Personal Consumption Loans

How Do Lenders Price Energy Efficiency? Evidence From Personal Consumption Loans

Who Bears the Welfare Costs of Monopoly? The Case of the Credit Card Industry

A Quantitative Theory of the Credit Score

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