This paper develops a new theory of long term unsecured credit contracts based on costly contracting that matches the data in a variety of dimensions. Credit lines are long term relations between lending firms and households that pre-specify a credit limit and interest rate in each period....

This paper studies properties of economies with complete markets where there is positive default on consumer debt. Households can default partially, at a punishment cost, and intermediaries price this risk competitively. This en- vironment yields only partial insurance. The risk-based pricing of...