The value of a good credit reputation: Evidence from credit card renegotiations

Andres Liberman

Journal of Financial Economics, 2016, vol. 120, issue 3, 644-660

Abstract: I exploit a natural experiment to estimate borrowers’ willingness to pay for a good credit reputation. A lender in Chile offered lower installments to borrowers who were in default. Those who owed more than a fixed arbitrary cutoff were additionally offered a clean public repayment record. Using the cutoff in a fuzzy regression discontinuity design, I show that borrowers are willing to pay the equivalent of 11% of their monthly income for a good reputation. Borrowers use their reputation to take on more debt with other banks, but default more. Thus, renegotiations may impose informational externalities on other lenders.

Keywords: Credit reputation; Renegotiation; Consumer credit (search for similar items in EconPapers)
JEL-codes: D12 D14 G21 G23 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:120:y:2016:i:3:p:644-660

DOI: 10.1016/j.jfineco.2016.02.004

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