Consumer Credit: Too Much or Too Little (or Just Right)?
Journal of Legal Studies, Special Issue on Benefit-Cost Analysis of Financial Regulation, Forthcoming
27 Pages Posted: 27 Nov 2013
Date Written: November 21, 2013
The intersection of research and policy on consumer credit often has a Goldilocks feel. Some researchers and policymakers posit that consumer credit markets produce too much credit. Other researchers and policymakers posit that markets produce too little credit. I review theories and evidence on inefficient consumer credit supply. For each of eight classes of theories I sketch some of the leading models and summarize any convincing empirical tests of those models. I also discuss more "circumstantial" evidence that does not map tightly into a particular model but has the potential to shed light on, or obscure, answers to key questions. Overall there is a lack of convincing evidence on whether markets err, and in which direction. We do not yet understand whether and under what conditions markets over-supply or under-supply credit, much less why.
Keywords: credit supply, lending, asymmetric information, behavioral economics, asset market externalities, microcredit, deleveraging, consumer protection
JEL Classification: D03, D14, D18, D82, E32, G21, G23, G28, R31
Suggested Citation: Suggested Citation