debt and financial expectations an individual and household level analysis in this article we show that optimistic financial expectations impact positively on both the quantity of debt and the growth in debt at the individual and household levels our theoretical model shows that this association is predicted under a variety of plausible scenarios in the empirical analysis we explore the determinants of debt and of growth in debt using british data we find convincing support for our theoretical priors and show that it is optimistic financial expectations per se that are important in influencing debt rather than the accuracy of individuals predictions regarding their future financial situation jel d18 d84 d91

macroeconomic and distributional effects of mortgage guarantee programs for the poor abstract government driven mortgage guarantee programs for example loans insured through the federal housing administration the department of veterans affairs and the rural housing service aim to help financially disadvantaged households buy and own their houses this study analyzes the macroeconomic and distributional effects of these government programs we propose a quantitative model where households endogenously choose their mortgage types either with or without government guarantees households that take out mortgages with government guarantees pay an up front insurance premium while those that choose mortgages without guarantees face borrowing limits our results show that a hypothetical decline in government subsidies for mortgage guarantee programs can improve aggregate household welfare mainly due to endogenous changes in mortgage interest rates and tax burdens rather than in housing prices the welfare implications are different across households depending on their financial status

recent developments in consumer credit and default literature this survey discusses recent contributions to the quantitative literature on unsecured consumer debt and default and some ongoing challenges for the literature key topics include the sources of the rise in personal bankruptcies the importance of asymmetric information and the effects of developments in information technologies on consumer credit markets delinquency and informal bankruptcy debt collection and restructuring of distressed debt the cyclical behavior of consumer debt and default and the insurance role of household debt implications for welfare analysis and policy design are discussed several theoretical contributions and approaches to modeling the consumer credit markets are also highlighted

consumer default and the life cycle model this paper studies the impact of a default option on life cycle consumption using a two period life cycle model with uncertain income the paper demonstrates that a default option causes a kink in both the budget set and the indifference curve at the point where the individual switches from saving to borrowing this nonconvexity can have a dramatic impact on optimal consumption the paper also explores the circumstances under which liquidity constraints are likely to emerge and the characteristics of those borrowers who are likely to face constraints copyright 1995 by ohio state university press

an equilibrium model of the business cycle with household production and fiscal policy the authors estimate a dynamic general equilibrium model of the u s economy that includes an explicit household production sector and stochastic fiscal variables they use their estimates to investigate two issues first the authors analyze how well the model accounts for aggregate fluctuations they find that household production has a significant impact and reject a nested specification in which changes in the home production technology do not matter for market variables second the authors study the effects of some simple fiscal policy experiments and show that the model generates different predictions for the effects of tax changes than similar models without home production copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

consumption smoothing and debtor protections abstract protections for defaulting debtors are a widely used form of consumption insurance this paper evaluates the costs and benefits of this insurance both inside and outside of bankruptcy first i show that consumption declines by 6 upon default revealing a potential role for greater debtor protections to smooth consumption second i use changes in states laws to estimate the impact of one type of debtor protection asset exemptions on repayment in default and interest rates while higher exemptions smooth consumption by reducing collection in default the interest rate cost is large relative to the benefits adapting a sufficient statistics formula from the literature the estimates imply that the cost of additional exemption protection exceeds what debtors are willing to pay

the un importance of chapter 7 wealth exemption levels this paper examines the effects of the chapter 7 wealth exemption level on welfare bankruptcy filings debt and on asset holdings i build a heterogeneous agent life cycle model which features uninsurable income and expense shocks moreover households can borrow and save simultaneously when a borrower defaults on her debt by filing for chapter 7 bankruptcy she can keep her assets up to the wealth exemption level wealth exemption levels are important for two reasons first they explain the extensive and intensive margin of the credit card debt puzzle around thirty percent of borrowers both in the model and in the data who borrow at high interest rates simultaneously save at low interest rates however these borrowers borrow and save only relatively small amounts a few thousand u s dollars second ignoring the exemption level biases results because it overstates the costs of defaulting the welfare gains from chapter 7 compared to the european system where debt is not discharged are twice as high when exemption levels are positive compared to when they are ignored at the same time wealth exemption levels are unimportant in the sense that they have an impact only at low exemption levels the effects of increases in the exemption level fade out very quickly there is no strong positive relationship between exemption levels which vary across u s states and default rates in the model this is in contrast to the previous literature but consistent with the data the reason is that those borrowers who might default do not own much wealth therefore only very few households are affected by increases in the exemption level

risk based pricing of interest rates for consumer loans abstract by focusing on observable default risk s role in loan terms and the subsequent consequences for household behavior this paper shows that lenders increasingly used risk based pricing of interest rates in consumer loan markets during the mid 1990s it tests three resulting predictions first the premium paid per unit of risk should have increased over this period second debt levels should have reacted accordingly third fewer high risk households should have been denied credit further contributing to the interest rate spread between the highest and lowest risk borrowers for people obtaining loans the premium paid per unit of risk did indeed become significantly larger after the mid 1990s for example for a 0 01 increase in the probability of bankruptcy the corresponding interest rate increase tripled for first mortgages doubled for automobile loans and rose nearly six fold for second mortgages additionally changes in borrowing levels and debt access reflected these new pricing practices particularly for secured debt borrowing increased most for the low risk households who saw their relative borrowing costs fall furthermore while very high risk households gained expanded access to credit the increases in their risk premiums implied that their borrowing as a whole either rose less or sometimes fell

sovereign debt relief and its aftermath this paper studies sovereign debt relief in a long term perspective we quantify the relief achieved through default and restructuring in two distinct samples 1920 1939 focusing on the defaults on official government to government debt in advanced economies after world war i and 1978 2010 focusing on emerging market debt crises with private external creditors debt relief was substantial in both eras averaging 21 of gdp in the 1930s and 16 of gdp in recent decades we then analyze the aftermath of debt relief and conduct a difference in differences analysis around the synchronous war debt defaults of 1934 and the baker and brady initiatives of the 1980s 1990s the economic landscape of debtor countries improves signicantly after debt relief operations but only if these involve debt write offs softer forms of debt relief such as maturity extensions and interest rate reductions are not generally followed by higher economic growth or improved credit ratings jel e6 f3 n0 and h6

explaining the puzzle of cross state differences in bankruptcy rates abstract bankruptcy rates vary tremendously across states and it is not obvious why the number of candidate explanations is large relative to the number of states to overcome this problem we use zip code level data to identify the importance of demographic variables using within state variation this preserves state level degrees of freedom to identify the impact of state policy variables demographics wage garnishment restrictions and the fraction of bankruptcies filed under chapter 13 explain 70 percent of the variation in filing rates across states exemption rates size of public safety nets and payday loan regulations contribute virtually nothing to the cross state variance in filing rates our findings suggest that state bankruptcy rates reflect the relative costs of filing for formal bankruptcy versus informal default states without effective wage garnishment provisions allow easy informal default furthermore repayment plans mandated under chapter 13 bankruptcy often lead to repeated bank

the nature of precautionary wealth abstract this paper uses the panel study of income dynamics to provide some of the first direct evidence that wealth is systematically higher for consumers with predictably greater income uncertainty however the apparent pattern of precautionary wealth is not consistent with a standard parameterization of the life cucle model in which consumers are patient enough to begin saving for retirement early in life wealth is estimated to be far less sensitive to uncertainty than implied by that model instead our results suggest that over most of their working life time consumers behave in accordance with the buffer stock models of saving described in carroll 1992 1997 or deaton 1991 in which consumers hold wealth principally to insulate consumption against near term fluctuations in income

access based consumption the case of car sharing access based consumption defined as transactions that can be market mediated but where no transfer of ownership takes place is becoming increasingly popular yet it is not well theorized this study examines the nature of access as it contrasts to ownership and sharing specifically the consumer object consumer consumer and consumer marketer relationships six dimensions are identified to distinguish among the range of access based consumptionscapes temporality anonymity market mediation consumer involvement the type of accessed object and political consumerism access based consumption is examined in the context of car sharing via an interpretive study of zipcar consumers four outcomes of these dimensions in the context of car sharing are identified lack of identification varying significance of use and sign value negative reciprocity resulting in a big brother model of governance and a deterrence of brand community the implications of our findings for understanding the nature of exchange consumption and brand community are discussed

voluntary sovereign debt exchanges we show that some recent sovereign debt restructurings were characterized by i the absence of missed debt payments prior to the restructurings ii reductions in the government s debt burden and iii increases in the market value of debt claims for holders of the restructured debt since both the government and its creditors are likely to benefit from such restructurings we label these episodes as voluntary debt exchanges we present a model in which voluntary debt exchanges can occur in equilibrium when the debt level takes values above the one that maximizes the market value of debt claims in contrast to previous studies on debt overhang in our model opportunities for voluntary exchanges arise because a debt reduction implies a decline of sovereign default risk this is observed in the absence of any effect of debt reductions on future output levels although voluntary exchanges are pareto improving at the time of the restructuring we show that eliminating the possibility of conducting voluntary exchanges may improve welfare from an ex ante perspective thus our results highlight a cost of initiatives that facilitate debt restructurings

credit card debt and default over the life cycle this paper solves an empirically parameterized model of life cycle consumption which allows for uncollaterized borrowing and the possibility of default the simulation results show that i social stigma and credit limit have a very large impact on default rates ii education level also has a significant effect on the probability of default namely through differences in the shape of lifetime labor income profiles and iii the response of simulated default rates to labor income shocks is determined by the nature of labor income uncertainty temporary versus permanent additionally the model generates simultaneous consumer holdings of credit card debt and liquid assets

non defaultable debt and sovereign risk abstract we quantify gains from introducing limited financing through non defaultable debt into a model of equilibrium sovereign risk for an initial sovereign spread of 4 2 introducing the possibility of issuing non defaultable debt for up to 10 of aggregate income reduces immediately the spread to 1 5 and implies a welfare gain equivalent to a permanent consumption increase of 0 8 nevertheless the spread reduction achieved by the introduction of non defaultable debt is short lived our findings shed light on different aspects of proposals to introduce common euro area sovereign bonds that could be virtually non defaultable

consumer durables and risky borrowing the effects of bankruptcy protection abstract there exist substantial differences in the generosity of bankruptcy protection across u s states this paper exploits cross state variation in exemption levels to assess the dual role of durable goods as informal collateral for unsecured debt and self insurance against bad shocks to earnings the generosity of bankruptcy protection is found to change both the incentives and the ability of households to accumulate durable wealth the gains from a high level of insurance are reduced by the effect of tighter credit constraints so that the net effects of a change in exemption are very small a more generous bankruptcy regulation reduces net durable wealth in the first half of the life cycle in addition the optimal level of exemption is positive but low

looking behind mortgage delinquencies abstract delinquency rates for mortgages originated before and after the financial crisis are examined using a novel and large panel obtained by merging data from tax records and credit registers first we estimate the selection into the mortgage market using an exogenous index of local credit supply as exclusion restriction second controlling for selection we estimate the impact of income shocks on the delinquency rate we find that since 2008 the selection process has led to the halving of the delinquency rate conditional on the creation of a new mortgage job losses nearly double the delinquency risk estimates uncorrected for selection are severely downward biased

bankruptcy as implicit health insurance this paper examines the implicit health insurance that households receive from the ability to declare bankruptcy exploiting multiple sources of variation in asset exemption law i show that uninsured households with a greater financial cost of bankruptcy make higher out of pocket medical payments conditional on the amount of care received in turn i find that households with greater wealth at risk are more likely to hold health insurance the implicit insurance from bankruptcy distorts the insurance coverage decision using a microsimulation model i calculate that the optimal pigovian penalties are three quarters as large as the average penalties under the affordable care act

liquidity constrained markets versus debt constrained markets this paper compares two different models in a common environment the first model has liquidity constraints in that consumers save a single asset that they cannot sell short the second model has debt constraints in that consumers cannot borrow so much that they would want to default but is otherwise a standard complete markets model both models share the features that individuals are unable to completely insure against idiosyncratic shocks and that interest rates are lower than subjective discount rates in a stochastic environment the two models have quite different dynamic properties with the debt constrained model exhibiting simple stochastic steady states while the liquidity constrained model has greater persistence of shocks

writing off sovereign debt default and recovery rates over the cycle abstract this paper studies the joint determination of sovereign borrowing default and debt restructuring outcomes in the data low debt recovery rates are associated with deep recessions in defaulting countries high indebtedness at the time of default and high borrowing costs post default i develop a dynamic model of sovereign debt to account for these facts recovery rates in the model are determined as the result of two countervailing forces cyclical conditions which reduce recovery rates in recessions and procyclical borrowing which has the opposite effect the former needs to be sufficiently strong for the model to match the data and i present empirical evidence and a theoretical rationale for such excess sensitivity of restructuring outcomes to cyclical conditions in the form of countercyclical bargaining power of the sovereign in the calibrated model i show that accounting for the cyclicality of recoveries is important for correctly predicting the timing of default events procyclical and low recovery rates are detrimental for welfare but the gains from eliminating the cyclicality are more than twice as high as those from raising average recovery rates

personal bankruptcy and credit market competition we document a link between u s credit supply and rising personal bankruptcy rates we exploit the exogenous variation in market contestability brought on by banking deregulation the relaxation of entry restrictions in the 1980s and 1990s at the state level we find deregulation explains at least 10 of the rise in bankruptcy rates we also find that deregulation leads to increased lending lower loss rates on loans and higher lending productivity our findings indicate that increased competition prompted banks to adopt sophisticated credit rating technology allowing for new credit extension to existing and previously excluded households the last quarter century saw a dramatic increase in the share of u s con sumers filing for personal bankruptcy thereby seeking a discharge of their unsecured debt in 2005 this increase led to the most comprehensive change to u s bankruptcy law since 1978 while several causes for the rise in bankruptcies have been advanced and it is the subject of ongoing research two potentially significant changes occurred during this period banking deregulation the relaxation of bank entry restrictions in the 1980s and 1990s and technological change in consumer lending banking deregulation by removing barriers to entry increases credit market competition and there fore affects the supply of credit new screening technologies change the way loans are made allowing for interest rates to better reflect underlying risk and thus facilitating lending to riskier borrowers in this paper we examine whether banking deregulation and technological change played a role in the increase in consumer bankruptcy the empirical literature has mostly focused on cross sectional differences in personal bankruptcy in particular it has revolved around legal institutions as a way to answer whether consumers file due to adverse events as part of a rational financial calculation or as a consequence of unfair or deceptive lending practices usually researchers have exploited the different asset exemptions across u s states i e the amount of personal assets protected from creditors

personal bankruptcy and credit supply and demand this paper examines how personal bankruptcy and bankruptcy exemptions affect the supply and demand for credit while generous state level bankruptcy exemptions are probably viewed by most policy makers as benefiting less well off borrowers our results using data from the 1983 survey of consumer finances suggest that they increase the amount of credit held by high asset households and reduce the availability and amount of credit to low asset households conditioning on observable characteristics thus bankruptcy exemptions redistribute credit toward borrowers with high assets interest rates on automobile loans for low asset households also appear to be higher in high exemption states

urban public transport companies and strategies to promote sustainable consumption practices abstract development policy adopted by governments and companies increasingly pays attention to issues of sustainability one dominant strategy emphasizes behavioural change vis a vis technological innovation however often attempts at changing individual and collective behaviour is ineffective one of the main reasons for this failure is that policy makers do not consider the gap between values and practices we propose to address this gap by using theories of practice which give centrality to reflexivity in the analysis of practices and have long been applied in research on environmental behaviours we will use the example of the transport sector which has long been a major contributor to climate change and technological improvements have not been enough to make up for the growth of impacts focusing on the role of a transport company in promoting sustainability through behavioural change the main goal of this article is to analyse transport practices from the supplier s perspective choices made by transport companies towards green technologies are strongly limited by available economic resources by the public policies and by the fuel market results also reinforce the idea that the economic dimension constrains the strategies to reduce environmental impacts

interpreting consumers a hermeneutical framework for deriving marketing insights from the texts of consumers consumption stories the author describes and illustrates a hermeneutically grounded interpretive framework for deriving marketing relevant insights from the texts of consumer stories and gives an overview of the phi

consumer bankruptcy a fresh start consumer bankruptcy provides partial insurance against bad luck but by driving up interest rates makes life cycle smoothing more difficult we argue that to assess this trade off one needs a quantitative model of consumer bankruptcy with three key features life cycle component idiosyncratic earnings uncertainty and expense uncertainty exogenous negative shocks to household balance sheets we find that transitory and persistent earnings shocks have very different implications for evaluating bankruptcy rules more persistent shocks make the bankruptcy option more desirable larger transitory shocks have the opposite effect our findings suggest the current us bankruptcy system may be desirable for reasonable parameter values jel d14 d91 k35

endogenous debt constraints in a life cycle model with an application to social security this paper develops a simple life cycle model that embeds a theory of debt restrictions based on the existence of inalienable property rights a la kehoe and levine 1993 debt constrained asset markets review of economic studies 60 4 865 888 2001 liquidity constrained markets versus debt constrained markets econometrica 69 3 575 598 in our environment net debtors have the option of defaulting on unsecured debt at the cost of being subjected to wage garnishment and or having some or all of their future assets seized by creditors one advantage of our framework is that it encompasses two standard versions of the life cycle model one with perfect capital markets and one with a non negative net worth restriction we study the impact of a payroll financed social security system to illustrate the role of endogenous debt constraints and compare our results to a model with exogenous debt constraints whereas the aggregate effects are similar under both types of constraints the distributional consequences are found to be significantly different across debt regimes

an anatomy of u s personal bankruptcy under chapter 13 we build a structural model of chapter 13 bankruptcy that captures salient features of personal bankruptcy under chapter 13 we estimate our model using a novel data set we construct from bankruptcy court dockets recorded in delaware between 2001 and 2002 our estimation results highlight the importance of debtor s choice of repayment plan length on chapter 13 outcomes under the restrictions imposed by the bankruptcy law we use the estimated model to conduct policy experiments to evaluate the impact of more stringent provisions of chapter 13 that impose additional restrictions on the length of repayment plans we nd that these provisions would not

welfare implications of the bankruptcy reform act of 1999 abstract in recent years personal bankruptcy has become an important issue to consumers creditors and legislators alike over 40 billion dollars of unsecured debt were discharged in 1998 by 1 44 million households these losses have led legislators to propose a variety of changes in bankruptcy law the most important and recent of which is the bankruptcy reform act of 1999 ba99 i develop a dynamic stochastic general equilibrium model of personal bankruptcy to investigate the trade off between the consumption smoothing role of bankruptcy and the interest rate and deadweight costs it imposes i find that stringent means tests would reduce filing rates only slightly and would have only modest welfare consequences on the other hand the elimination of bankruptcy altogether is found to have substantial benefits this result is robust to income shock persistence and to stringency in the application of means tests

understanding the link between collaborative economy and sustainable behaviour an empirical investigation abstract the collaborative economy is growing at an exponential rate and the accommodation sector is especially affected the relevance of the phenomenon is linked with sustainable consumption that encourages resource efficiency waste reduction development of better products and surplus reutilization due to overproduction and overconsumption this paper aims at investigating the relationship between collaborative consumption and the adoption of sustainable practices from the users perspective after identifying the gaps existing in the literature different research approaches were integrated at first 4 focus groups were conducted to detect the main attributes and benefits attached to collaborative economy in tourism the personal values instrumental and terminal values relevant to p2p accommodation renting were identified through laddering technique as the propensity to put in place sustainable behaviour thereafter a structural model based on the framework of the theory of planned behaviour tpb constructs was set and tested to understand its consistency with the above values an ad hoc questionnaire was projected and administered online based on a sample of 384 respondents quantitative data were analysed through statistical and structural equation modeling software from an academic perspective the paper enhances the current knowledge in identifying the desired end states that users want to achieve by renting a p2p accommodation moreover it exploits and adapts the tpb to an emerging consumption model such as collaborative economy thus disclosing the relation between collaborative consumption and sustainable behaviour moreover the adaptation of tpb model to the newest context of collaborative economy expands the knowledge related to sustainable consumption from a managerial perspective it is necessary to emphasize the importance of defining a new business paradigm considering collaborative consumption to support environmental policy and encouraging sustainable behaviour

saving and liquidity constraints this paper is concerned with the theory of saving when consumers are not permitted to borrow and with the ability of such a theory to account for some of the stylized facts of saving behavior the models presented in the paper seem to account for important aspects of reality that are not explained by traditional life cycle models copyright 1991 by the econometric society

unsecured debt with public insurance from bad to worse abstract in u s data income interruptions the receipt of public insurance and the incidence of personal bankruptcy are all closely related the central contribution of this paper is to evaluate bankruptcy protection and public insurance in a unified setting where each program alters incentives in the other our analysis delivers two striking conclusions first we find that u s personal bankruptcy law is an important barrier that prevents the public insurance system from improving welfare second contrary to popular belief we find that increases in the generosity of public insurance will lead to more not less bankruptcy

willingness to pay in different policy planning methods insights into respondents decision making processes willingness to pay in different policy planning methods insights into respondents decision making processes

the determinants of attitudes towards strategic default on mortgages we use survey data to measure households propensity to default on mortgages even if they can afford to pay them strategic default when the value of the mortgage exceeds the value of the house the willingness to default increases in both the absolute and the relative size of the home equity shortfall our evidence suggests that this willingness is affected by both pecuniary and non pecuniary factors such as views about fairness and morality we also find that exposure to other people who strategically defaulted increases the propensity to default strategically because it conveys information about the probability of being sued

the role of values in collaborative consumption insights from a product service system for lending and borrowing in the uk abstract collaborative consumption is an emerging socio economic model based on sharing renting gifting bartering swapping lending and borrowing made possible through community interaction and increasingly use of network technologies these alternative and more sustainable ways of consuming have attracted growing attention for their potential to prevent new purchases intensify the use of idle assets and promote reuse of possessions that are no longer wanted nonetheless the uptake of product service systems psss that enable collaborative consumption is still very limited this paper investigates how consumers values can influence the acceptance adoption and diffusion of collaborative consumption it reviews two theoretical frameworks used to understand pro environmental behaviour social psychological models of behaviour and social practice theory coming from contrasting disciplinary perspectives these approaches conceptualise values differently the paper evaluates the possibility of resolving these differences through a mixed methods study it examines values empirically through a case study of ecomodo a uk based online marketplace where people can lend and borrow each other s objects spaces and skills and present the results of a quantitative study which identified and measured value priorities among ecomodo users through schwartz s portrait value questionnaire it concludes with a discussion of the role of values in relation to the introduction and scaling up of psss that enable collaborative consumption

recent developments in consumer credit and default literature consumer credit and default literature this survey discusses recent contributions to the quantitative literature on unsecured consumer debt and default and some ongoing challenges for the literature key topics include the sources of the rise in personal bankruptcies the importance of asymmetric information and the effects of developments in information technologies on consumer credit markets delinquency and informal bankruptcy debt collection and restructuring of distressed debt the cyclical behavior of consumer debt and default and the insurance role of household debt implications for welfare analysis and policy design are discussed several theoretical contributions and approaches to modeling the consumer credit markets are also highlighted

what happens when information leaves a market evidence from postbankruptcy consumers federal law mandates the removal of personal bankruptcies from credit reports after 10 years the removal s effect is market efficiency in reverse the short term effect is a spurious boost in apparent creditworthiness especially for the more creditworthy bankrupts delivering a substantial increase in both credit scores and the number and aggregate limit of bank cards the longer term effect is lower scores and higher delinquency than initial full information scores predict these findings relate to both the debate over the bankruptcy code and the wisdom of influencing market clearing by removing information

evidence on the insurance effect of bankruptcy exemptions abstract defaulting on one s debts when experiencing an adverse event can help insure households against unexpected income risks but the effect of allowing default on debt levels is ambiguous not least because lenders may restrict access to credit hence the optimal punishment for bankruptcy is unclear the us states allows householders to keep a variety of assets when filing for bankruptcy the bankruptcy exemptions and these exemptions change substantially between states and over time by exploiting these differences this study shows that raising the exemptions i marginally decreases the level of unsecured debt that household s hold ii makes consumption smoother thus despite the effect on debt levels the generous provisions to debtors in arrears may be helping us households to insure themselves against income risk

an empirical analysis of personal bankruptcy and delinquency this article uses a new dataset of credit card accounts to analyze credit card delinquency personal bankruptcy and the stability of credit risk models we estimate duration models for default and assess the relative importance of different variables in predicting default we investigate how the propensity to default has changed over time disentangling the two leading explanations for the recent increase in default rates a deterioration in the risk composition of borrowers versus an increase in borrowers willingness to default due to declines in default costs even after controlling for risk composition and economic fundamentals the propensity to default significantly increased between 1995 and 1997 standard default models missed an important time varying default factor consistent with a decline in default costs debt issued by consumers is an understudied asset class there has been particularly little academic study of recent trends in default on this debt between 1994 and 1997 the number of personal bankruptcy filings in the united states rose by about 75 the 1 35 million filings in 1997 represented well over 1 of u s households delinquency rates on credit cards rose almost as sharply federal reserve bank of cleveland 1998 the resulting losses to lenders amounted to a sizable fraction of the interest payments they collect potentially raising the average cost of credit these trends in default both in bankruptcy and delinquency are especially surprising in light of the strong economy over the period they provide an unusually rich source of variation to test the stability of models that forecast personal default and of credit risk models more generally there are two leading explanations for these trends first the risk composition of borrowers might have worsened under the risk effect less

sovereign debt renegotiation and credit default swaps abstract a credit default swap cds contract provides insurance against default this paper incorporates the contract into a sovereign default model and demonstrates that the existence of a cds market results in lower default probability higher debt levels and lower financing costs for the country uncertainty over the insurance payout when the debt is renegotiated explains why in the data as the output declines the cds spread becomes lower than the bond spread finally my results show that the 2012 cds naked ban that decreased the levels of cds for european countries is a welfare reducing policy

macroeconomic effects of the mortgage refinance and the home equity lines of credit abstract i examine how the mortgage refinance and the home equity lines of credit heloc impact the increase in pre crisis mortgage debt and post crisis mortgage defaults financially constrained homeowners can cash out funds through refinancing mortgages or extract home equity through heloc my quantitative exercise shows that prevalent usage of refinancing increases pre crisis mortgage debt which amplifies the post crisis foreclosure rate heloc also contributes to an increase in mortgage defaults though it negligibly impacts pre crisis mortgage debt

the output costs of hard and soft sovereign default abstract how costly are sovereign debt crises in this paper we study output losses during sovereign default and debt renegotiation episodes since 1980 in contrast to previous work we account for the severity of default and not only for its occurrence specifically we distinguish between hard and soft defaults using new data on debtor payment and negotiation behavior and on the size of haircuts towards private external creditors we show that hard defaults are associated with a much steeper drop in gdp of up to ten percent compared to soft defaults the results are consistent with theoretical models assuming proportional output costs of default

consumer bankruptcy and financial health this paper estimates the effect of chapter 13 bankruptcy protection on financial health using a new data set linking bankruptcy filings to credit bureau records our empirical strategy uses the leniency of randomly assigned judges as an instrument for chapter 13 protection we find that chapter 13 protection decreases an index measuring adverse financial events such as civil judgments and repossessions by 0 323 standard deviations and increases the probability of being a homeowner by 13 2 percentage points chapter 13 protection has little impact on open unsecured debt but decreases the amount of debt in collections by 1 333

macroeconomic effects of bankruptcy and foreclosure policies i study the implications of two major debt relief policies in the united states the bankruptcy abuse prevention and consumer protection act bapcpa and the home affordable refinance program harp

do liquidity constraints and interest rates matter for consumer behavior evidence from credit card data this paper utilizes a unique new dataset of credit card accounts to analyze how people respond to changes in credit supply the data consist of a panel of thousands of individual credit card accounts from several different card issuers with associated credit bureau data we estimate both marginal propensities to consume mpcs out of liquidity and interest rate elasticities we also evaluate the ability of different models of consumption to rationalize our results distinguishing the permanent income hypothesis pih liquidity constraints precautionary saving and behavioral models we find that increases in credit limits generate an immediate and significant rise in debt counter to the pih the average mpc out of liquidity ddebt dlimit ranges between 10 14 the mpc is much larger for people starting near their limits consistent with binding liquidity constraints however the mpc is significant even for people starting well below their limit we show this response is consistent with buffer stock models of precautionary saving nonetheless there are other results that conventional models cannot easily explain e g why so many people are borrowing on their credit cards and simultaneously holding low yielding assets unlike most other studies we also find strong effects from changes in account specific interest rates the long run elasticity of debt to the interest rate is approximately 1 3 less than half of this elasticity represents balance shifting across cards with most reflecting net changes in total borrowing the elasticity is larger for decreases in interest rates than for increases which can explain the widespread use of temporary promotional rates the elasticity is smaller for people starting near their credit limits again consistent with liquidity constraints

arm breaking consumer credit and personal bankruptcy the consumer credit transaction is analyzed as a contract which provides insurance as well as present consumption for the borrower creditors remedies such as arm breaking are shown to facilitate provision of insurance forgiveness of debts when lenders cannot monitor outcomes alternatively if outcomes are observable but lenders do not ex ante know the risk associated with each borrower the market may generate an excessive amount of arm breaking and agreements to forgo discharge following bankruptcy as low risk borrowers signal their characteristics suggesting that government limitations on such provisions might be efficient the secured credit transaction is shown to be a complex contract which attempts to provide efficient repayment seller incentives for performance and mitigation following default and insurance for the borrower garnishment and discharge of debts following bankruptcy are also considered

consumption savings decisions with quasi geometric discounting we study the consumption savings problem of an infinitely lived rational consumer who has time inconsistent preferences in the form of quasi geometric discounting the consumer operates a weakly concave production function and must simply divide current resources into current consumption and savings there is no uncertainty a solution to the consumer s problem is a subgame perfect equilibrium of a dynamic game between the consumer s successive selves we show that this game has a continuum of equilibria in stationary markov strategies not only is the stationary point of the consumer s asset holdings indeterminate but each stationary point has a continuum of dynamic paths converging to it the savings policy rules underlying these dynamic paths are step functions

the household bankruptcy decision personal bankruptcy filings have risen from 0 3 percent of households per year in 1984 to around 1 35 percent in 1998 and 1999 transforming bankruptcy from a rare occurrence to a routine event lenders lost about 39 billion in 1998 due to personal bankruptcy filings but economists have little understanding of why households file for bankruptcy or why filings have increased so rapidly until very recently studying the household bankruptcy decision was very difficult because no household level data set existed that included information on bankruptcy filings in this paper we use new data from the panel study of income dynamics which includes information on bankruptcy filings to estimate a model of households bankruptcy decisions we find support for the strategic model of bankruptcy which predicts that households are more likely to file when their financial benefit from filing is higher our model predicts that an increase of 1 000 in households financial benefit from bankruptcy would result in a 7 percent increase in the number of bankruptcy filings our model also predicts that if the 1997 national bankruptcy review commission s proposed changes in bankruptcy exemption levels were implemented there would be a 16 percent increase in the number of bankruptcy filings each year but if the 100 000 cap on homestead exemptions recently passed by the u s senate were adopted our model predicts that there would be only a negligible effect on the number of filings we find little support for the nonstrategic model of bankruptcy which predicts that households file when adverse events occur which reduce their ability to repay finally controlling for state and time fixed effects our model shows that households are more likely to file for bankruptcy if they live in districts with higher aggregate filing rates

on efficient distribution with private information this paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with many consumers each of whom is subject to private idiosyncratic taste shocks we propose a recursive method for finding feasible allocations that are incentivecompatible and that are pareto optimal within this set the method is applied to several parametric examples we find that in an efficient allocation the degree of inequality continually increases with a diminishing fraction of the population receiving an increasing fraction of the resources we discuss the extent to which these allocations can be decentralized via market arrangements this paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with private information the economy we study has a constant endowment flow of a single non storable consumption good which is to be allocated each period among a large number of consumers each period these consumers experience unpredictable idiosyncratic privately observed taste shocks affecting their marginal utility of current consumption efficiency dictates that more resources be allocated to those consumers who in any given period have a high marginal utility of current consumption

financing vs forgiving a debt overhang abstract this paper examines the tradeoffs facing creditors of a country whose debt is large enough that the country cannot attract voluntary new lending if the country is unable to meet its debt service requirements out of current income the creditors have two choices they can finance the country lending at an expected loss in the hope that the country will eventually be able to repay its debt after all or they can forgive reducing the debt level to one that the country can repay the post 1983 debt strategy of the imf and the us has relied on financing but many current calls for debt reform call for forgiveness instead the paper shows that the choice between financing and forgiveness represents a tradeoff financing gives the creditors an option value if the country turns out to do relatively well creditors will not have written down their claims unnecessarily however the burden of debt distorts the country s incentives since the benefits of good performance go largely to creditors rather than itself the paper also shows that the tradeoff itself can be improved if both financing and forgiveness are made contingent on states of nature that the country cannot affect such as oil prices world interest rates etc

efficiency and the role of default when security markets are incomplete this paper argues that default plays an important positive role in the economy if markets are incomplete and traders are only able to enter into contracts that they will be able to execute regardless of future events contingent contracting may be severely restricted moreover opening new markets may not relieve these restrictions default promotes efficiency in a way that opening new markets does not by making it possible for traders to enter into contracts that they will be able to execute with high probability but not with certainty copyright 1993 by american economic association

personal bankruptcy law debt portfolios and entrepreneurship bankruptcy provides entrepreneurs with insurance against the financial consequences of failure at the cost of worsened credit conditions using a quantitative general equilibrium model of entrepreneurship we show that the presence of secured credit in addition to unsecured credit substantially alters this trade off if secured credit is not available the optimal bankruptcy law is harsh since the negative effect dominates if secured credit is available the optimal law is lenient since entrepreneurs rationed out of the unsecured credit market can still obtain secured credit lowering the costs of worse credit conditions we find significant welfare gains from reforming the law

sovereign debt restructurings preemptive or post default sovereign debt restructurings can be implemented preemptively prior to a payment default we code a comprehensive new dataset and nd that preemptive restructurings i are frequent 38 of all deals 1978 2010 ii have lower haircuts iii are quicker to negotiate and iv see lower output losses to rationalize these stylized facts we build a quantitative sovereign debt model that incorporates preemptive and post default renegotiations the model improves the t with the data and explains the sovereign s optimal choice preemptive restructurings occur when default risk is high ex ante while defaults occur after unexpected bad shocks empirical evidence supports these predictions jel f34 f41 h63

an economic analysis of bankruptcy statutes personal bankruptcy statutes are analyzed as social insurance agreements the risk sharing and incentive effects resulting from changes in bankruptcy laws are studied it is shown that increasing the leniency of bankruptcy statutes may have unambiguous short term benefits to potential bankrupts but may be detrimental in the long run

impact of state exemption laws on small business bankruptcy decision 1 introductionsmall businesses are a primary source of employment in the u s economy employing over half of the private sector workforce small businesses are responsible for about two thirds of all net new jobs created according to the 2002 small business economic indicators sbei 1 over 99 7 of the 5 7 million firms in the united states are classified as small to medium sized businesses hence small businesses are a substantial contributor to economic growth in the united states small business owners enjoy more flexibility and freedom to capitalize on profitable opportunities than their larger business competitors hence they challenge the larger firms to be more efficient which is ultimately beneficial to consumers unfortunately small and medium sized businesses have a very low survival rate sbei 2002 in 2002 on the heels of the 2001 recession there were 550 100 small business births and 584 500 small business terminations both academics and public policy analysts have become increasingly concerned about the success of small businesses recently there has been a surge in small business research particularly surrounding small business credit supply and demand not surprisingly much of the literature has been focused on changes in lending technologies relationship2 versus scored3 information processing technologies soft versus hard 4 loan size considerations 5 and loan type considerations6 as they relate to small business supply and demand however very few have actually examined why small and medium sized businesses have very low survival rates some studies have analyzed the sensitivities of small business administration sba guaranteed loans to macroeconomic changes industry risks maturity structures 3 7 and 15 year maturities as well as lender and debt characteristics e g glennon and nigro 2001 2002 dunsky and pennington cross 2003 meanwhile agarwal chomsisengphet and liu 2003 empirically assessed the significant importance of owner and firm characteristics in determining the risk of small business default while controlling for the macroeconomic and industry risks with bankruptcy filings continuing to rise significantly in recent years many policy makers are turning their attention to bankruptcy laws specifically congress is considering reforming personal bankruptcy laws that if passed will significantly impact the demand for and supply of both consumer credit and small business funding white 2001 concludes that this bankruptcy reform could potentially reduce small business ownership but increase the supply of small business credit and in turn affect the growth of the u s economy small business owners have an incentive to file for personal bankruptcy when their indebtedness exceeds the value of their assets because both their personal and business debts can be discharged 7 though the bankruptcy exemption law is primarily designed for consumers the personal bankruptcy exemption law is a de facto bankruptcy procedure for small business owners because the debt of a noncorporate firm is the personal liability of the entrepreneur owner fan and white 2003 hence investigating the potential impact of the exemption law on small business bankruptcy decisions may provide some insight into how the bankruptcy laws should be reformed further fan and white 2003 argue that while the expected return to creditors should be lower in states with higher exemption level upon small business shutdown it is not entirely clear whether lenders will actually shut down a financially troubled small business while they empirically find that small businesses in high exemption states are more likely to be shut down this positive relationship is statistically insignificant the authors conclude that additional research will be needed to determine if a significant relationship exists p

participation in the afdc program and the stigma of welfare receipt estimation of a choice theoretic model one of the important issues in policy discussions of the present welfare system and of welfare reform alternatives concerns the degree to which low income families eligible for welfare will in fact participate in the major program in the current system aid to families with dependent children afdc participation rates have risen over time particularly in the late 1960 s but have never been 100 percent explaining such changes in participation rates is an important subject of investigation because a participation rates lead directly to caseload sizes and thus to the possibility of a welfare explosion and b the estimates of the effect of welfare program tax rates and guarantees 10 are strictly applicable only to participants and not to non participants the most likely explanation for this seemingly irrational phenomenon of families rejecting an increase in disposable income lies in the stigma of welfare receipt for many families consider welfare participation to be demeaning socially undesirable and or destructive of self respect and feelings of self worth however although there has been considerable discussion of the nature of stigma 13 particularly in the sociological literature 11 there is a need to establish a firm theoretical base for the phenomenon and to formally investigate its properties in this paper a model of welfare participation is developed which incorporates stigma and thus establishes such a theoretical base and estimates of the parameters of the model are obtained there are two key characteristics of the model first participation in a welfare program is introduced into the utility function under the assumption that stigma represents a distaste for welfare the desire to participate is thus formulated within a traditional consumer

consumption and risk sharing over the life cycle a striking feature of u s data on income and consumption is that inequality increases with age this paper asks if individual specific earnings risk can provide a coherent explanation we find that it can we construct an overlapping generations general equilibrium model in which households face uninsurable earnings shocks over the course of their lifetimes earnings inequality is exogenous and is calibrated to match data from the u s panel study on income dynamics consumption inequality is endogenous and matches well data from the u s consumer expenditure survey the total risk households face is decomposed into that realized before entering the labor market and that realized throughout the working years in welfare terms the latter is found to be more important than the former

u s consumer bankruptcy choice the importance of general equilibrium effects abstract we study the implications of u s personal bankruptcy rules for resource allocation and welfare our analysis shows that general equilibrium considerations along with bankruptcy chapter choice and production matter crucially for the effects of policy reform contrary to previous work we find that completely eliminating bankruptcy provisions causes significant declines in output and welfare by reducing capital formation and labor input furthermore subjecting chapter 7 filers to means testing as suggested by recent legislative proposals would not improve upon current bankruptcy provisions and at best leave aggregate filings output and welfare unchanged however we do find that an alternative tightening of chapter 7 in the form of lower asset exemptions can increase economic efficiency

strategic or nonstrategic the role of financial benefit in bankruptcy i introduction personal bankruptcy rates have increased at an annual rate of 3 9 since 1990 from about 718 thousand non business bankruptcies in 1990 to about 1 5 million in 2010 partly as a response to this increase the congress passed the bankruptcy abuse prevention and consumer protection act bapcpa of 2005 the largest overhaul of bankruptcy laws since 1980 although recent data are too sparse to determine the longer term effectiveness of the law we know that there was a spike in bankruptcy filings in 2005 just before the law took effect on october 17 2005 and a corresponding decline in 2006 since then bankruptcies have continued to rise reaching a level of about 1 5 million in 2010 the same level as in 2004 the bankruptcy rate has also begun to creep up to the earlier levels one of the major purposes of the new bankruptcy law was to cut down on abusive or fraudulent uses of the bankruptcy system or in other words strategic use of the law therefore it is important to understand the motivations of consumers who file for bankruptcy what constitutes strategic use of bankruptcy law and how widespread is its incidence in the literature there is no clear definition of what constitutes a strategic bankruptcy filing we shall consider strategic behavior to be a conscious decision to benefit from bankruptcy law to make this tractable consider a simple two period model of decision making in the first period consumers receive a noisy signal of experiencing a financial shock in the second period based on this signal consumers may update their probability of an adverse shock and choose their debt level in the second period the shock is realized and consumers decide whether to file for bankruptcy or not a strategic consumer is one who in the first period chooses her debt level after conditioning on the signal that is a strategic consumer takes on debt after accounting for the chance of filing for bankruptcy in other words a strategic consumer is one who is fully rational and takes decisions to maximize her benefit a nonstrategic consumer is one who chooses debt level without conditioning on the signal he plans to repay his debt in the absence of adverse events such a consumer is myopic and may be exhibiting rational inattention as described below consistent with this view we may distinguish between strategic and nonstrategic behavior by testing whether consumers make their debt and filing decision jointly or not strategic behavior is consistent with a joint decision whereas nonstrategic behavior is not in terms of empirical strategy this is implemented by testing whether financial benefit is endogenous to the filing decision or not our test is different from the one in the study by fay hurst and white 2002 henceforth fhw in that approach a positive relationship between filing for bankruptcy and financial benefit from filing ceteris paribus is taken as evidence of strategic behavior and a positive relationship between filing for bankruptcy and adverse events such as divorce health shocks employment shocks etc is taken as evidence of nonstrategic behavior using data from the panel study of income dynamics psid fhw show that financial benefit is positively and significantly related to the filing decision and after controlling for financial benefit adverse event variables do not affect the bankruptcy decision except for a marginally significant positive effect of divorce 1 this simple empirical relationship between bankruptcy filing and financial benefit does not consider more realistic relationships among financial benefit adverse events and strategic behavior for example financial benefit from filing may go up due to adverse events regardless of whether a consumer is trying to abuse bankruptcy law or not that is financial benefit goes up when a consumer consciously increases unsecured debts before filing consistent with strategic behavior and it also goes up when she uses unsecured debt e

long duration bonds and sovereign defaults abstract this paper extends the baseline framework used in recent quantitative studies of sovereign default by assuming that the government can borrow using long duration bonds this contrasts with previous studies which assume the government can borrow using bonds that mature after one quarter we show that when we assume that the government issues bonds with a duration similar to the average duration of sovereign bonds in emerging economies the model generates an interest rate that is substantially higher and more volatile than the one obtained assuming one quarter bonds this narrows the gap between the predictions of the model and the data which indicates that the introduction of long duration bonds may be a useful tool for future research about emerging economies our analysis is also relevant for the study of other credit markets

group characteristics evolution arising from asymmetric information in asymmetric information problems agents with less information principals or contractors usually take as given the preferences of agents with more information agents or contractees moreover the distribution of characteristics of contractees is supposed to be invariant in this article we consider a mixed framework of asymmetric information adverse selection followed by moral hazard where those two assumptions are excluded specifically the contractor only knows the current distribution of characteristics and the contractees may change them after signing the contract if this improves their welfare thus we find that the asymmetric information problem leads to a group eect changes of characteristics this feedback defines a sequence of temporary equilibria we provide conditions for the convergence of that sequence to a stationary long run equilibrium we also prove that both temporary equilibrium and long run equilibrium coincide with the equilibrium in classical models of adverse selection and the moral hazard problem vanishes in the long run

how unsecured credit policies influence mortgage and unsecured loan defaults before the global financial crisis the proportion of households defaulting on the mortgage while remaining current on the unsecured loan was almost the same as the proportion of households current on the mortgage but defaulting on the unsecured loan after the crisis the former ratio became higher than the latter by using a heterogeneous agent model with the mortgage and the unsecured loan i examine how the order of defaults changed before and after the crisis i then analyze the impacts of unsecured credit policies on households mortgage and unsecured loan defaults my quantitative exercise shows that both default rates can decrease as the cost for unsecured loan defaults increases

income fluctuation and asymmetric information an example of a repeated principal agent problem we examine a simple repeated principal agent model with discounting there are a risk averse borrower with an unobservable random income and a risk neutral lender the efficient contract is characterized it tends to the first best constant consumption contract as the discount factor tends to one and the time horizon extends to infinity if the time horizon is infinite and the contract is legally enforceable the borrower s utility becomes arbitrarily negative with probability one if the borrower has constant absolute risk aversion consumption is transferred between any two states at a constant interest rate which is less than the rate of time preference

redistributive taxation and personal bankruptcy in u s states abstract personal bankruptcy regulation and redistributive taxes and transfers vary considerably across u s states and over time our hypothesis is that both policies are imperfect substitutes in insuring consumption of risk averse agents in incomplete markets exploiting data variation over time for 18 u s states for the period 1980 2003 we find considerable support for this hypothesis redistributive taxation and bankruptcy exemptions are negatively correlated and both policies are associated with more equal consumption growth

fresh start or head start uniform bankruptcy exemptions and welfare abstract the 1990s witnessed a historically unprecedented number of personal bankruptcy filings in response congressional debate over bankruptcy law has recently led to several proposals aimed at making it more difficult to exempt wealth in a bankruptcy in this paper i evaluate uniform exemption policy primarily within the context of the recent congressional proposal h r 975 i develop an incomplete markets model where secured and unsecured assets coexist and are treated differentially in a bankruptcy proceeding i find that exemptions are associated positively with filing rates equity holdings in bankruptcy and welfare i find however that exemptions are strongly negatively associated with the availability of unsecured credit nonetheless the welfare effects of exemptions result from changes in borrowing costs changes in an implicit tax on self insurance and most crucially changes in the level of state contingency provided by unsecured debt as a quantitative matter these effects are resolved in a favor of a minor but positive role for exemptions

dynamic valuation of delinquent credit card accounts this paper introduces a dynamic model of the stochastic repayment behavior exhibited by delinquent credit card accounts based on this model we construct a dynamic collectability score dcs that estimates the account specific probability of collecting a given portion of the outstanding debt over any given time horizon the model integrates a variety of information sources including historical repayment data account specific and time varying macroeconomic covariates as well as scheduled account treatment actions two model identification methods are examined based on maximum likelihood estimation and the generalized method of moments the latter allows for an operational statistics approach combining model estimation and performance optimization by tailoring the estimation error to business relevant loss functions the dcs framework is applied to a large set of account level repayment data the improvements in classification and prediction performance compared to standard bank internal scoring meth

on the concavity of the consumption function at least since keynes 1935 many economists have had the intuition that the marginal propensity to consume out of wealth declines as wealth increases nonetheless standard perfect certainty and certainty equivalent versions of intertemporal optimizing models of consumption imply a marginal propensity to consume that is unrelated to the level of household wealth we show that adding income uncertainty to the standard optimization problem induces a concave consumption function in which as keynes suggested the marginal propensity to consume out of wealth or transitory income declines with the level of wealth