Accounting for the Rise in Consumer Bankruptcies in the U.S. and Canada
AbstractPersonal bankruptcy filings have increased dramatically: rising from 1.4 in per thousand of working age population 1970 to 8.5 in 2002 in the United States and from 0.2 in 1970 to 4.3 in 2002 in Canada. This paper asks whether 6 commonly mentioned potential explanations -- financial innovation, financial market liberalization, an increase in household specific idiosyncratic risk, demographic changes, legal changes and decreased â€œstigmaâ€ -- can quantitatively account for the rise in consumer bankruptcies in the United States and Canada. We use a heterogeneous agent life cycle model with competitive intermediaries who are able to (imperfectly) observe households (labor) productivity, age and current asset holdings. We undertake numerical experiments to determine the extent to which each of the 5 factors can account for the rise in consumer bankruptcies. Our analysis suggests that financial innovation (the spread of credit scoring and new collateralized debt instruments) and financial liberalization play an essential role, while demographic changes and increased earnings uncertainty play a small role in accounting for the rise. These results cast doubt on explanations of the rise which depend upon declining ``stigma'' explanation or the relaxation of the bankruptcy code
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 822.
Date of creation: 2004
Date of revision:
Contact details of provider:
Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC
consumer bankruptcy; consumer credit.;
Find related papers by JEL classification:
- E20 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- K35 - Law and Economics - - Other Substantive Areas of Law - - - Personal Bankruptcy Law
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral 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 references are entirely missing, you can add them using this form.