Ethanol Policy Effects on U.S. Natural Gas Prices and Quantities by Jarrett Whistance, Wyatt W. Thompson and Seth D. Meyer. Published in volume 100, issue 2, pages 178-82 of American Economic Review, May 2010
American Economic Review2010100(2), 449-453open access
Can Openness Mitigate the Effects of Weather Shocks? Evidence from India's Famine Era by Robin Burgess and Dave Donaldson. Published in volume 100, issue 2, pages 449-53 of American Economic Review, May 2010
We analyze contract choices, loan-repayment behavior, and welfare in a model of a competitive credit market when borrowers have a taste for immediate gratification. Consistent with many credit cards and subprime mortgages, for most types of nonsophisticated borrowers the baseline repayment terms are cheap, but they are also inefficiently front loaded and delays require paying large penalties. Although credit is for future consumption, nonsophisticated consumers overborrow, pay the penalties, and back load repayment, suffering large welfare losses. Prohibiting large penalties for deferring small amounts of repayment—akin to recent regulations in the US credit-card and mortgage markets—can raise welfare. (JEL D14, D18, D49, D86)