This paper increases understanding of the causes and consequences of discrimination in credit markets. It develops an underwriting model in which lenders use a simple Bayesian updating process to evaluate applicant creditworthiness. It also models individuals' self-selection behavior to show how...

In this article we make two contributions toward a better understanding of the causes and consequences of discrimination in credit markets. First, we develop an explicit theoretical model of loan underwriting in which lenders use a simple Bayesian updating process to evaluate applicant...

Once a debtor becomes financially distressed, conflict among creditors can occur, leading to an inefficient liquidation of the debtor. We argue that bankruptcy law is intended to protect creditors from one another. In the absence of a bankruptcy system, creditors generally find individual...