Democratic Political Economy of Financial Regulation
We offer a theory of how inefficiently lax financial regulation could arise in a democratic society.
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2
result(s)
Consumer Credit with Over-optimistic Borrowers
Staff working paper 2020-57
Florian Exler,
Igor Livshits,
James (Jim) C. MacGee,
Michèle Tertilt
When lenders cannot directly identify behavioural and rational borrowers, they use type scoring to track the likelihood of a borrower’s type. This leads to the partial pooling of borrowers, which results in rational borrowers subsidizing borrowing costs for behavioural borrowers. This, in turn, reduces the effectiveness of regulatory policies that target mistakes by behavioural borrowers.
Content Type(s):
Staff research,
Staff working papers
JEL Code(s):
E,
E2,
E21,
E4,
E49,
G,
G1,
G18,
K,
K3,
K35
Research Theme(s):
Financial system,
Financial stability and systemic risk,
Financial system regulation and oversight,
Household and business credit,
Monetary policy,
Monetary policy framework and transmission