Borrower Naivete in the Credit Market: Proposal for the Center for Equitable Growth Research Grant

A well-functioning credit market is a central driver of economic growth. At the same time, academics, policymakers, as well as the general public, have long been concerned that in some situations borrowing can actually end up hurting consumers. This concern has resurfaced with particular poignancy in the recent financial crisis, as subprime mortgages, credit cards, payday loans, and other credit constructs are widely believed to have confused and taken advantage of some of the poorest and financially most vulnerable groups in the population. Ensuring that credit markets continue to support economic growth, yet do so in a way that benefits a broad cross-section of the population, is therefore of central policy concern.