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Overoptimism and Lender Liability in the Consumer Credit Market

Elisabetta Iossa and Giuliana Palumbo ()

No 598, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: Credit purchases of consumer goods are commonly made upon terms governed by an agreement between the lender and the seller. This type of purchase is generally subject to a legal principle of joint responsibility under which the lender and the seller are jointly liable to the consumer for breach of the sale contract by the seller. We study the rationale for this principle in situations where market failure arises because consumers under estimate the risk of product failure - for example due to selle rmisrepresentation - and it is difficult to enforce seller responsibility. We show that joint responsibility increases welfare and reduces the incentives of sellers to misrepresent the quality of their products.

Keywords: consumer credit; lender liability; misrepresentation; overoptimism; product failure (search for similar items in EconPapers)
JEL-codes: D18 G28 K13 (search for similar items in EconPapers)
Date: 2006-09
New Economics Papers: this item is included in nep-cbe, nep-fin, nep-fmk and nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Over-optimism and lender liability in the consumer credit market (2010) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_598_06

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