Improved Matching, Directed Search, and Bargaining in the Credit Card Market

Gajendran Raveendranathan

No 112, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: I build a model of revolving credit in which consumers face idiosyncratic earnings risk, and credit card firms target consumers with credit offers. Upon a match, they bargain over borrowing limits and borrowing interest rates -- fixed for the duration of the match. Using the model, I show that improved matching between consumers and credit card firms quantitatively accounts for the rise in revolving credit and consumer bankruptcies in the U.S. I also provide empirical evidence consistent with the key features in my model: directed search and bargaining. The lifetime consumption gains from improved matching are substantially large (3.55 percent).

Date: 2018
New Economics Papers: this item is included in nep-ban, nep-dge and nep-pay
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Working Paper: Improved Matching, Directed Search, and Bargaining in the Credit Card Market (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed018:112

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