The Economics of Consumer Credit.

Author:Scott, Robert H., III
Position:Book review
 
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The Economics of Consumer Credit, edited by Giuseppe Bertola, Richard Disney and Charles Grant. Cambridge, MA: MIT Press. 2006. Hardcover: ISBN 0262026015, $40.00. 388 pages.

From sub-prime mortgages to payday loans, many people are financing current daily expenses with future debt obligations running into the trillions of dollars. Factors such as inequality, rising inflation, and poor financial education help contribute to greater reliance on consumer credit so households can maintain consistent standards-of-living. This volume comprises articles that investigate various aspects of consumer credit markets. Several articles discuss not only consumer credit markets in the United States, but the United Kingdom and other countries in the European Union. The chapters fit into one of three categories: historical, topical, and resultant. The historical chapters cover how consumer credit markets work and how they developed. The topical chapters analyze specific types of credit currently in news headlines--credit cards and mortgages. The resultant chapters investigate the regulation of consumer credit markets and the impact of expanding credit markets on consumers--particularly the rise in personal bankruptcies, credit counseling, and credit reporting agencies.

Theoretical and historical nuances of the consumer credit market are covered in the first two chapters. Unfortunately, the first chapter provides a weak foundation from which to start the book because Bertola, Disney, and Grant expound the usefulness of optimization modeling and the Permanent Income Hypothesis to explain consumption behavior without mentioning more contemporary literature on the subject, such as that of Kahneman and Tversky (see Pressman 2006). But this chapter can be overlooked without guilt. The second chapter provides a unique look into the growth of consumer credit in the United States and European Union countries. Their analysis becomes obscure when they compare the regulatory differences of credit reporting agencies of each country. They quantify this information and use it as a proxy for comparing consumer access to credit among the different countries. The authors admit that their results are questionable due to small sample size. However, a less quantitative more qualitative explanation of the main differences between each country's credit reporting agencies would have been more useful, and would have required less data.

Three chapters are devoted to specific credit...

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