We propose a theory of unsecured consumer credit where: (i) borrowers have the legal option to default; (ii) defaulters are not exogenously excluded from future borrowing; (iii) there is free entry of lenders; and (iv) lenders cannot collude to punish defaulters. In our framework, limited credit...

We prove that the standard quasi-geometric discounting model used in dynamic consumer theory and political economics does not possess continuous Markov Perfect equilibria if there is a strictly positive lower bound on wealth. We also show that at points of discontinuity, the decision maker...