CREDIT CONTRACT

Contract Pricing in Consumer Credit Markets∗

We study pricing and contract design in the subprime auto sales market. We develop a model of the demand for financed purchases that incorporates both adverse selection and moral hazard effects, and estimate the model using detailed transactionlevel data. We use the model to quantify selection and repayment problems and show that different contracting terms, in particular car price and required...

Valuation of Lease Contract and Credit Risk

Leasing has become a very important financial instrument today. A large amount of literature discusses the determination of lease rate. In this essay, we focus on the valuations of lease contracts and credit risk. First, we introduce both discrete and continuous time models to determine the equilibrium rate of risk-fiee lease contracts. Then, by relaxing the restriction of riskless leases, a mo...

Supplement to “ Contract Pricing in Consumer Credit Markets

This appendix provides a more detailed analysis of a parameterized version of the consumer model presented in Section 4.1. We first describe our parameterization of the model. Second, we illustrate some of the theoretical properties of the model and show that the model can incorporate several important features observed in our data. In particular, the model allows for adverse selection (borrowe...

SUPPLEMENT TO “ CONTRACT PRICING IN CONSUMER CREDIT MARKETS ” ( Econometrica

HERE WE PRESENT the likelihood function used to estimate the parameters of the demand model. The model can be thought of as a system of four “standard” equations: (i) a tobit down payment equation (with censoring at the minimum down), (ii) a probit purchase equation, (iii) a tobit repayment equation (with censoring at full payment or at the end of our sample), and (iv) a linear price negotiatio...

The Economics of Contract Farming: A Credit and Investment Perspective∗