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CF Weekly Workshop - Xuan Tam

When Nov 08, 2011
from 05:00 PM to 06:00 PM
Where Rm 7, Lecture Block, Sidgwick Site
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Talk by Dr Xuan Tam

Title:  Loan Guarantees for Consumer Credit Markets

Abstract:

Loan guarantees are arguably the most widely used policy intervention in credit markets,
especially for consumer credit. However, despite their size, little is known about their quantitative
effects on prices and allocations Moreover, loan guarantees have features that have the
potential to make them particularly effective in consumer credit markets.
In this paper, we provide a quantitative assessment of the price and allocational consequences
of consumer loan guarantees. Our work is novel as it studies loan guarantees in a quantitativelyrich
model where credit allocation is allowed to be affected by both asymmetric information
and limited commitment frictions. Under symmetric information, we find that loan guarantees
can improve welfare for all agents only if they are limited in generosity. Under asymmetric
information, loan guarantees can improve welfare, especially if they are restricted to households
hit by large expenditure shocks.
Keywords: Bankruptcy, Unsecured Credit, Loan Guarantees
JEL Classification Codes: D82, D91, E21.

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