Logo image
Back
The Cost of Consumer Collateral: Evidence from Bunching
Journal article   Open access   Peer reviewed

The Cost of Consumer Collateral: Evidence from Bunching

Benjamin L Collier, Cameron M Ellis and Benjamin J. Keys
Econometrica : journal of the Econometric Society, Vol.93(3), pp.779-819
05/2025
DOI: 10.3982/ecta22303
Appears in  UI Libraries Support Open Access
url
https://doi.org/10.3982/ecta22303 View
Published (Version of record) Open Access

Abstract

How do collateral requirements impact consumer borrowing behavior? Using administrative loan application and performance data from the U.S. Federal Disaster Loan Program, we exploit a loan amount threshold above which households must post their residence as collateral. Our bunching estimates suggest that the median borrower is willing to give up 40% of their loan amount to avoid posting collateral. Exploiting time variation in the threshold, we estimate collateral causally reduces default rates by 36%. Finally, we structurally estimate households' attachment to their homes, net of any equity, and find a median value of $11,000. Attachment creates a wedge between lender and borrower valuation of collateral of 15%. Our results explain high perceived default costs in the mortgage market, and document the importance of collateral for reducing moral hazard in consumer credit markets.
 UIOWA OA Agreement

Details

Metrics

2 Record Views
Logo image