EconPapers    
Economics at your fingertips  
 

Default Option, Risk-Aversion and Household Borrowing Behaviour

Ingrid Groessl () and Ulrich Fritsche ()
Additional contact information
Ingrid Groessl: Department for Economics and Politics, University of Hamburg

No 200705, Macroeconomics and Finance Series from University of Hamburg, Department of Socioeconomics

Abstract: Assuming a risk-neutral bank and assuming household utility to be exponential, we show how under information symmetry the covariance of income and loan repayments may explain higher household borrowings than in the case without default option. Under ex post information asymmetry and positive control costs, the result is less clear-cut. We also make evident that in a situation in which a household without default option would neither borrow nor save, the existence of a default option makes household borrowing behaviour unpredictable.

Keywords: Consumption; exponential utility; certainty equivalent; households; default option; borrowing; risk; risk aversion; risk management (search for similar items in EconPapers)
JEL-codes: D11 D14 D18 D53 D81 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-upt
Date: 2007-09
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://www.wiso.uni-hamburg.de/repec/hepdoc/macppr_5_2007.pdf First version, 2007 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hep:macppr:200705

Access Statistics for this paper

More papers in Macroeconomics and Finance Series from University of Hamburg, Department of Socioeconomics Contact information at EDIRC.
Bibliographic data for series maintained by Ulrich Fritsche ().

 
Page updated 2019-06-19
Handle: RePEc:hep:macppr:200705