the empirical density of credit card interest rates has become much more disperse since 1983.

Consumer bankruptcy has increased more than 4-fold since 1980. Livshits, MacGee, and Tertilt (2006) show that a decline in the social stigma of bankruptcy together with a decline in the transactions cost of borrowing can account for both increased filings and increased unsecured borrowing by...

Do cognitive biases call for regulation to limit the use of credit? We incorporate over-optimistic and rational borrowers into an incomplete markets model with consumer bankruptcy. Over-optimists face worse income risk but incorrectly believe they are rational. Thus, both types behave...

Political contributions appear to be subject to an obvious public goods problem. Free riding might be expected to lead to polarization of contributions. We show that it is not true in general. In fact, in the most obvious model, with arbitrary number of candidates, we get a median contributor...

Several recent defaults on sovereign debt were accompanied by major banking crises in the defaulting countries. I argue that the banking crises, triggered by the defaults, were due to inadequate prudential regulations, which did not recognize the riskiness of the government debt. I use a simple...

This paper presents a theoretical framework in which either long-term or short-term labor contracts arise endogenously. The fundamental trade-off is between firm specific and general human capital. While firm-specific human capital is more productive than general human capital, it cannot be...

ex-ante appropriate (good) institutions may appear to be bad ex-post as they make economies vulnerable to shocks such as turbulence. As an example, the firing restrictions in Europe and Japan, which appear to be an inefficient institution ex-post, may have been a part of an efficient arrangement...

We propose a simple model with adverse selection where delinquency, renegotiation, and bankruptcy all occur in equilibrium as a result of a simple screening mechanism. A borrower has private information about her cost of bankruptcy, and a lender may use random contracts to screen different types...

There are large countercyclical fluctuations in U.S. bankruptcy filings and real credit card interest rates, while unsecured credit is pro-cyclical. This paper documents the facts and asks whether the predictions of incomplete market models with bankruptcy are consistent with these facts. We...