Universität Bonn

Department of Economics

MEF-Seminar Summersemester 2022

Dean Corbae, University of Wisconsin-Madison, 22.06.2022

"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. 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 individuals’ credit scores. We find a 13% difference in patience in almost equally sized groups in the steady state population with significant turnover and a shift towards becoming more patient with age. If tracking of individual credit actions is outlawed, poor young adults of low type benefit from subsidization by high types despite facing higher interest rates arising from lower dynamic incentives to repay."
Wednesday, 22.06.22 - 12:15 PM - 01:30 PM
A Quantitative Theory of the Credit Score (with S. Chatterjee, K. Dempsey, V. Rios-Rull)
Juridicum, Adenauerallee 24-42
Faculty Room
not required
Institute for Macroeconomics and Econometrics
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