Kfir Eliaz and Ran Spiegler 2006) does not investigate credit contracts and especially welfare and possible welfare-improving interventions in credit markets in detail. Furthermore, because borrowing on a mortgage or to purchase a durable good typically involves up-front effort costs with mostly delayed benefits, models of a taste for immediate gratification do not seem to predict much of the overextension that has worried researchers and policymakers. In this paper, we provide a formal economic analysis of the features and welfare effects of credit contracts when some consumers have a time-inconsistent taste for immediate gratification that they may only partially understand
