Electronic Thesis and Dissertation Repository


Doctor of Philosophy




Igor Livshits


My dissertation consists of three chapters, where the common theme among them is debt and saving. My work contributes to our understanding of how debt markets function for entrepreneurs, large corporations and households.

The first chapter studies how entrepreneurs used personal borrowing to fund their businesses during the Great Recession. One of the defining characteristics of this period was a “credit crunch” during which the supply of credit dropped for all borrowers. I show that changes in the finances of entrepreneurs between 2007 and 2009 are consistent with entrepreneurs using personal assets to secure lending for their businesses and overcome this credit crunch. In particular, I find that home equity loan balances increased by 10%, despite a 12% drop in the value of aggregate housing stock. Entrepreneurs were responsible for 76% of the increase in home equity loan balances, while they only represent 13% of the population.

In the second chapter, I study the use of credit ratings by large corporations in the bond market. Over the last 25 years, there has been a drastic change in the distribution of corporate bond ratings: between 1985 and 2010 the number of firms issuing AAA or AA-rated debt dropped by 70%, while the number of firms issuing debt with lower ratings increased. I propose a mechanism whereby investors learn about firms through credit ratings and publicly available financial information and develop a model that incorporates this mechanism such that firms must devote resources to improving their rating. Under general conditions, the number of high-rated firms decreases in response to an increase in public signal accuracy.

The third chapter explores the role of financial market access on household consumption inequality. The standard macroeconomic models of consumption and saving with stochastic income processes have failed to match the rise in consumption inequality between 1980 and 2004. I present a model with idiosyncratic earnings risk and endogenous market segmentation between incomplete and complete markets for financial assets. This model improves upon the qualitative predictions regarding between-group and within-group consumption inequality of a standard incomplete markets model and a standard complete markets model with limited commitment.