Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/103171 
Year of Publication: 
2007
Series/Report no.: 
DEP (Socioeconomics) Discussion Papers - Macroeconomics and Finance Series No. 5/2007
Publisher: 
Hamburg University, Department Economics and Politics, Hamburg
Abstract: 
Assuming a risk-neutral bank and assuming household utility to be exponential, we show how under information symmetry the covariance of income and loan repayments may explain higher household borrowings than in the case without default option. Under ex post information asymmetry and positive control costs, the result is less clear-cut. We also make evident that in a situation in which a household without default option would neither borrow nor save, the existence of a default option makes household borrowing behaviour unpredictable.
Subjects: 
Consumption
exponential utility
certainty equivalent
households
default option
borrowing
risk
risk aversion
risk management
JEL: 
D11
D14
D18
D53
D81
Document Type: 
Working Paper

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