Advanced Search
MyIDEAS: Login to save this article or follow this journal

Information Technology and the Rise of Household Bankruptcy

Contents:

Author Info

  • Borghan Nezami Narajabad

    (Rice University)

Abstract

Several studies have attributed the rise of household bankruptcy in the past two decades to the decline of social stigma associated with default. Stigma explanations, however, cannot account for the large increase in the use of unsecured credit during this period. I explain the simultaneous increase in bankruptcy rates and unsecured credit as the result of improvements in credit-rating technologies. Using an environment where borrowers face heterogeneous default costs (unobservable by creditors), I show that such improvements will lead to agents with high default costs, i.e., "safe" borrowers, being able to borrow more. A quantitative example illustrates that this increased access to credit can be large enough to raise both equilibrium borrowing and default rates. (Copyright: Elsevier)

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://dx.doi.org/10.1016/j.red.2012.06.002
Download Restriction: Access to full texts is restricted to ScienceDirect subscribers and institutional members. See http://www.sciencedirect.com/ for details.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 15 (2012)
Issue (Month): 4 (October)
Pages: 526-550

as in new window
Handle: RePEc:red:issued:10-43

Contact details of provider:
Postal: Review of Economic Dynamics Academic Press Editorial Office 525 "B" Street, Suite 1900 San Diego, CA 92101
Fax: 1-314-444-8731
Email:
Web page: http://www.EconomicDynamics.org/review.htm
More information through EDIRC

Order Information:
Email:
Web: http://www.EconomicDynamics.org/RED17.htm

Related research

Keywords: Consumer bankruptcy; Information and market efficiency; Rating agencies;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Fatih Guvenen, 2005. "Learning Your Earning: Are Labor Income Shocks Really Very Persistent?," Macroeconomics, EconWPA 0507004, EconWPA.
  2. Igor Livshits & James MacGee & Michele Tertilt, 2006. "Accounting for the Rise in Consumer Bankruptcies," Discussion Papers, Stanford Institute for Economic Policy Research 06-001, Stanford Institute for Economic Policy Research.
  3. Jim MacGee & Igor Livshits & Michele Tertilt, 2008. "Costly Contracts and Consumer Credit," 2008 Meeting Papers 385, Society for Economic Dynamics.
  4. A Jorge Padilla & Marco Pagano, 1994. "Sharing Default Information as a Borrower Discipline Device," CEPR Financial Markets Paper, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ 0043, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ.
  5. Ausubel, Lawrence M, 1991. "The Failure of Competition in the Credit Card Market," American Economic Review, American Economic Association, American Economic Association, vol. 81(1), pages 50-81, March.
  6. Allen N. Berger, 2002. "The economic effects of technological progress: evidence from the banking industry," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2002-50, Board of Governors of the Federal Reserve System (U.S.).
  7. Kartik Athreya & Xuan S. Tam & Eric R. Young, 2011. "A quantitative theory of information and unsecured credit," Working Paper, Federal Reserve Bank of Richmond 08-06, Federal Reserve Bank of Richmond.
  8. David B. Gross & Nicholas S. Souleles, 2002. "Do Liquidity Constraints And Interest Rates Matter For Consumer Behavior? Evidence From Credit Card Data," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(1), pages 149-185, February.
  9. Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 17(5-6), pages 953-969.
  10. Scott Fay & Erik Hurst & Michelle J. White, 2002. "The Household Bankruptcy Decision," American Economic Review, American Economic Association, American Economic Association, vol. 92(3), pages 706-718, June.
  11. David B. Gross, 2002. "An Empirical Analysis of Personal Bankruptcy and Delinquency," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 15(1), pages 319-347, March.
  12. Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & Jose-Victor Rios-Rull, 2007. "A quantitative theory of unsecured consumer credit with risk of default," Working Papers 07-16, Federal Reserve Bank of Philadelphia.
  13. Paul S. Calem & Michael B. Gordy & Loretta J. Mester, 2005. "Switching costs and adverse selection in the market for credit cards: new evidence," Working Papers 05-16, Federal Reserve Bank of Philadelphia.
  14. Fatih Guvenen, 2007. "An empirical investigation of labor income processes," IFS Working Papers, Institute for Fiscal Studies W07/13, Institute for Fiscal Studies.
  15. Juan M. Sánchez, 2010. "The IT revolution and the unsecured credit market," Working Papers, Federal Reserve Bank of St. Louis 2010-022, Federal Reserve Bank of St. Louis.
  16. Kartik Athreya, 2004. "Shame as it ever was : stigma and personal bankruptcy," Economic Quarterly, Federal Reserve Bank of Richmond, Federal Reserve Bank of Richmond, issue Spr, pages 1-19.
  17. David K. Musto, 2004. "What Happens When Information Leaves a Market? Evidence from Postbankruptcy Consumers," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 77(4), pages 725-748, October.
  18. Ian Domowitz & Robert L. Sartain, 1999. "Determinants of the Consumer Bankruptcy Decision," Journal of Finance, American Finance Association, American Finance Association, vol. 54(1), pages 403-420, 02.
  19. Jaromir B. Nosal & Lukasz A. Drozd, 2008. "Competing for Customers: A Search Model of the Market for Unsecured Credit," 2008 Meeting Papers 274, Society for Economic Dynamics.
  20. Borys Grochulski, 2010. "Optimal Personal Bankruptcy Design under Moral Hazard," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(2), pages 350-378, April.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Livshits, Igor & MacGee, James & Tertilt, Michèle, 2014. "The Democratization of Credit and the Rise in Consumer Bankruptcies," Working Papers, University of Mannheim, Department of Economics 14-07, University of Mannheim, Department of Economics.
  2. Xuan Tam & Eric Young & Kartik Athreya, 2013. "A Quantitative Theory of Credit Scoring," 2013 Meeting Papers, Society for Economic Dynamics 382, Society for Economic Dynamics.
  3. Verónica Balzarotti & Alejandra Anastasi, 2013. "Does Competition for Novice Borrowers Hurt Access to Finance? An Analysis in a Context of High Risk and Low Outreach," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, Central Bank of Argentina, Economic Research Department, vol. 1(69), pages 101-149, December.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:red:issued:10-43. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.