Xuan S. Tam
Job Market Candidate
Research:
Publication
Unsecured Credit Markets Are Not Insurance Markets with Kartik Athreya and Eric Young . Journal of Monetary Economics (Carnegie-Rochester Volume) , 56 (1): 83-103, January 2009.
This paper studies the extent to which unsecured credit markets have altered the transmission
of increased income risk to consumption variability over the past several decades. We find that
credit markets pass through most of the increase income risk to consumption, irrespective of
bankruptcy policy and the information possessed by lenders. If risk sharing has indeed improved
over this period, the reasons do not therefore lie in the unsecured credit market.
Working Papers
A Quantitative Theory of Information and Unsecured Credit with Kartik Athreya and Eric Young . Under Review.
Over the past three decades five striking features of aggregates in the unsecured credit market
have been documented: (1) rising availability of credit along both the intensive and extensive
margins, (2) rising debt accumulation, (3) rising bankruptcy rates and discharge in bankruptcy,
(4) rising dispersion in interest rates across households, and (5) the emergence of a discount
for borrowers with good credit ratings. We show that all five outcomes are quantitatively
consistent with improvements in the ability of lenders to observe borrower characteristics. Part
of our contribution is the development of an algorithm for computing equilibria with asymmetric
information and individualized pricing. From a welfare perspective, our main finding is that
more information is better ex ante, even though better information can rule out pooling outcomes
that some groups might find beneficial ex post.
Are Harsh Punishment Really Better? with Kartik Athreya and Eric Young . Under Review.
How might society ensure the allocation of credit to those who lack meaningful collateral? Two very different options that have each been pursued by a variety of societies through time and space are (i) relatively harsh penalties for default and more recently (ii) loan guarantee programs which allow borrowers to default subject to moderate consequences and use public funds to compensate lenders. The goal of this paper is to provide a quantitative statement about the relative desirability of these responses. Our findings are twofold. First, we show that under a wide array of circumstances, punishments harsh enough to ensure all debt is repaid improve welfare. With respect to loan guarantees, our findings suggest that such efforts are largely useless at best, and substantially harmful at worst. Generous loan guarantees virtually ensure substantially higher taxes – with transfers away from the non-defaulting poor to the defaulting middle-class – and greater deadweight loss from high equilibrium default rates. Taken as a whole, our findings suggest that current policy towards default is likely to be counterproductive, and that guarantees for consumption loans are not the answer.
Working Papers
How Equal Does the Equal Credit Opportunity Act Make Us? with Kartik Athreya and Eric Young .Constrained Effciency in the Presence of Idiosyncratic Uninsurable Risk with Kartik Athreya and Eric Young .
Life Insurance over the Life Cycle with Kartik Athreya, Greg Jachno , and Eric Young .