EconPapers    
Economics at your fingertips  
 

A Quantitative Theory of the Credit Score

Satyajit Chatterjee (), P. Dean Corbae (), Kyle Dempsey () and José-Víctor Ríos-Rull ()

No 27671, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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 without monetary costs of default beyond the administrative cost of filing for bankruptcy. 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 individual’s credit scores. We find a 3% difference in patience in almost equally sized groups in the population with significant turnover and a shift towards becoming more patient with age. If tracking of individual credit actions is outlawed, the benefits of bankruptcy forgiveness are outweighed by the higher interest rates associated with lower incentives to repay.

JEL-codes: D82 E21 G51 (search for similar items in EconPapers)
Date: 2020-08
New Economics Papers: this item is included in nep-dge, nep-mac and nep-pay
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.nber.org/papers/w27671.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
Working Paper: A Quantitative Theory of the Credit Score (2020) Downloads
Working Paper: A Quantitative Theory of the Credit Score (2020) Downloads
Working Paper: A Quantitative Theory of the Credit Score (2020) Downloads
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:nbr:nberwo:27671

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w27671
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2021-07-01
Handle: RePEc:nbr:nberwo:27671