/pdf/the-theory-of-industrial-organization-19bejph0ej.pdf

The Theory of Industrial Organization

Forecasting Bankruptcy More Accurately: A Simple Hazard Model

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Supermodularity And Complementarity

Aggregate Comparative Statics

We study the adoption of automated credit scoring at a large auto finance company and the changes it enabled in lending practices. Credit scoring appears to have increased profits by roughly a thousand dollars per loan. We identify two distinct benefits of risk classification: the ability to screen high-risk borrowers and the ability to target more generous loans to lower-risk borrowers. We show that these had effects of similar magnitude. We also document that credit scoring compressed profitability across dealerships, and provide evidence consistent with the view that credit scoring may have substituted for varying qualities of local information.

/pdf/the-impact-of-credit-scoring-on-consumer-lending-1wlg484wsn.pdf

The impact of credit scoring on consumer lending

http://www2.ku.edu/~kuwpaper/2008Papers/200810.pdf

Monotone comparative statics for games with strategic substitutes

This paper studies games with both strategic substitutes and strategic complements, and more generally, games with strategic heterogeneity (GSH). Such games may behave differently from either games with strategic complements or games with strategic substitutes. Under mild assumptions (on one or two players only), the equilibrium set in a GSH is totally unordered (no two equilibria are comparable in the standard product order). Moreover, under mild assumptions (on one player only), parameterized GSH do not allow decreasing equilibrium selections. In general, this cannot be strengthened to conclude increasing selections. Monotone comparative statics results are presented for games in which some players exhibit strategic substitutes and others exhibit strategic complements. For two-player games with linearly ordered strategy spaces, there is a characterization. More generally, there are sufficient conditions. The conditions apply only to players exhibiting strategic substitutes; no additional conditions are needed for players with strategic complements. Several examples highlight the results.

/pdf/games-with-strategic-complements-and-substitutes-27frrz48w0.pdf

Games with strategic complements and substitutes

This paper uses novel data on the performance of loan pools underlying asset-backed securities to estimate a competing risks model of default and prepayment on subprime automobile loans. We find that prepayment rates increase rapidly with loan age but are not affected by prevailing market interest rates. Default rates are much more sensitive to aggregate shocks than are prepayment rates. Increases in unemployment precede increases in default rates, suggesting that defaults on subprime automobile loans are driven largely by shocks to household liquidity. There are significant differences in the default and prepayment rates faced by different subprime lenders. Those lenders that charge the highest interest rates experience the highest default rates, but also experience somewhat lower prepayment rates. We conjecture that there is substantial heterogeneity among subprime borrowers, and that different lenders target different segments of the subprime market. Because of their higher default rates, loans that carry the highest interest rates do not appear to yield the highest expected returns.

/pdf/what-drives-default-and-prepayment-on-subprime-auto-loans-1wjkn6kn3a.pdf

What Drives Default and Prepayment on Subprime Auto Loans

This paper uses novel data on the performance of pools underlying asset- backed securities to estimate a competing risks model of default and prepayment on subprime automobile loans. We find that prepayment rates increase rapidly with loan age but are not affected by prevailing market interest rates. Default rates are much more sensitive to aggregate shocks than are prepayment rates. Increases in unemployment precede increases in default rates, suggesting that defaults on subprime automobile loans are driven largely by shocks to household liquidity. There are significant differences in the default and prepayment rates faced by different subprime lenders. Those lenders that charge the highest interest rates experience the highest default rates, but also experience somewhat lower prepayment rates. We conjecture that there is substantial heterogeneity among subprime borrowers, and that different enders target different segments of the subprime market. Because of their higher default rates, loans that carry the highest interest rates do not appear to yield the highest expected returns.

This paper studies models where the optimal response functions under consideration are non-increasing in endogenous variables, and weakly increasing in exogenous parameters. Such models include games with strategic substitutes, and include cases where additionally, some variables may be strategic complements. The main result here is that the equilibrium set in such models is a non-empty, complete lattice, if, and only if, there is a unique equilibrium. Indeed, for a given parameter value, a pair of distinct equilibria are never comparable. Therefore, with multiple equilibria, some of the established techniques for exhibiting increasing equilibria or computing equilibria that use the largest or smallest equilibrium, or that use the lattice structure of the equilibrium set do not apply to such models. Moreover, there are no ranked equilibria in such models. Additionally, the analysis here implies a new proof and a slight generalization of some existing results. It is shown that when a parameter increases, no new equilibrium is smaller than any old equilibrium. (In particular, in n-player games of strategic substitutes with real-valued action spaces, symmetric equilibria increase with the parameter.)

Tarun Sabarwal

Papers

Monotone comparative statics for games with strategic substitutes

Games with strategic complements and substitutes

What Drives Default and Prepayment on Subprime Auto Loans

What Drives Default and Prepayment on Subprime Auto Loans

On the (non-)lattice structure of the equilibrium set in games with strategic substitutes