In Section V, we discuss how our theory contributes to the literature on contracting with timeinconsistent or irrational consumers and relates to neoclassical screening. We are not aware of a theory with rational time-consistent borrowers that explains the key contract features predicted by our model, and we argue that natural specifications do not do so. Because the main predictions of our model are about repayment terms, the most likely neoclassical screening explanation would revolve around heterogeneity in borrowers’ ability to repay the loan early. If borrowers know at the time of contracting whether they can repay fast, a lender will offer an expensive loan with back-loaded repayment.
