Econometrica: Nov, 2007, Volume 75, Issue 6
A Quantitative Theory of Unsecured Consumer Credit with Risk of Default
https://doi.org/10.1111/j.1468-0262.2007.00806.x
p. 1525-1589
Satyajit Chatterjee, Dean Corbae, Makoto Nakajima, José‐Víctor Ríos‐Rull
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 macroeconomic 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.
Supplemental Material
Supplementary material for "A Quantitative Theory of Unsecured Consumer Credit with Risk of Default"
This zip file contains programs and data accompanying the paper "A Quantitative Theory of Unsecured Consumer Credit with RIsk of Default", and a readme.txt file that describes them.
View zip
Supplementary material for "A Quantitative Theory of Unsecured Consumer Credit with Risk of Default": Proofs
This file contains proofs of Lemmas 7, 19-21, and 23.
View pdf
Supplementary material for "A Quantitative Theory of Unsecured Consumer Credit with Risk of Default"
This zip file contains programs and data accompanying the paper "A Quantitative Theory of Unsecured Consumer Credit with RIsk of Default", and a readme.txt file that describes them.
View zip
Supplementary material for "A Quantitative Theory of Unsecured Consumer Credit with Risk of Default": Proofs
This file contains proofs of Lemmas 7, 19-21, and 23.
View pdf