|Michèle Tertilt|James MacGee| 28.02.2014
The Democratization of Credit and the Rise in Consumer Bankruptcies
Financial innovations are a common explanation for the rise in credit card debt and bankruptcies. To evaluate this story, the authors develop a simple model that incorporates two key frictions: asymmetric information about borrowers’ risk of default and a fixed cost of developing each contract lenders offer.
|Natalia Kovrijnykh| 11.05.2013
Screening as a Unified Theory of Delinquency, Renegotiation, and Bankruptcy
The authors propose a parsimonious model with adverse selection where delinquency, renegotiation, and bankruptcy all occur in equilibrium as a result of a simple screening mechanism.