A Quantitative Theory of Unsecured Consumer Credit with Risk of Default

We study, theoretically and quantitatively, the general equilibrium of an economy in which households smooth consumption by means of both a riskless asset and unsecured loans with the option to default. The default option resembles a bankruptcy filing under Chapter 7 of the U.S. Bankruptcy Code. Com...

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Veröffentlicht in:Econometrica 2007-11, Vol.75 (6), p.1525-1589
Hauptverfasser: Chatterjee, Satyajit, Corbae, Dean, Nakajima, Makoto, Ríos-Rull, José-Víctor
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container_end_page 1589
container_issue 6
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container_title Econometrica
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creator Chatterjee, Satyajit
Corbae, Dean
Nakajima, Makoto
Ríos-Rull, José-Víctor
description We study, theoretically and quantitatively, the general equilibrium of an economy in which households smooth consumption by means of both a riskless asset and unsecured loans with the option to default. The default option resembles a bankruptcy filing under Chapter 7 of the U.S. Bankruptcy Code. Competitive financial intermediaries offer a menu of loan sizes and interest rates wherein each loan makes zero profits. We prove the existence of a steady-state equilibrium and characterize the circumstances under which a household defaults on its loans. We show that our model accounts for the main statistics regarding bankruptcy and unsecured credit while matching key macro-economic aggregates, and the earnings and wealth distributions. We use this model to address the implications of a recent policy change that introduces a form of "means testing" for households contemplating a Chapter 7 bankruptcy filing. We find that this policy change yields large welfare gains.
doi_str_mv 10.1111/j.1468-0262.2007.00806.x
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source JSTOR Mathematics & Statistics; Access via Wiley Online Library; JSTOR
subjects Applications
Bankruptcy
Consumer bankruptcy
Consumer credit
Consumption
Credit
Credit market
Default
Default risk
Distribution theory
Economic equilibrium models
Economic modeling
Economic models
Exact sciences and technology
Financial economics
Financial liabilities
Financial risks
General economic equilibrium
general equilibrium
Household income
Insurance, economics, finance
Loan defaults
Manual labor
Mathematics
Model testing
Personal bankruptcy
Personal debt
Probability and statistics
Probability theory and stochastic processes
Sciences and techniques of general use
Statistics
Studies
U.S.A
title A Quantitative Theory of Unsecured Consumer Credit with Risk of Default
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