Accurate credit-granting decisions are crucial to the efficiency of the decentralized capital allocation mechanisms in modern market economies. Credit bureaus and many financial institutions have developed and used credit-scoring models to standardize and automate, to the extent possible, credit...

Capital allocation decisions are made on the basis of an assessment of creditworthiness. Default is a rare event for most segments of a bank's portfolio and data information can be minimal. Inference about default rates is essential for efficient capital allocation, for risk management and for...