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Regulating Consumer Bankruptcy: A Theoretical Inquiry

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  • Barry Adler
  • Ben Polak
  • Alan Schwartz

Abstract

This paper uses a principal/agent framework to analyze consumer bankruptcy. The bankruptcy discharge partly insures risk averse borrowers against bad income realizations, but also reduces the borrower's incentive to avoid insolvency. Among our results are: (a) High bankruptcy exemptions increase bankruptcy insurance but at the cost of reducing the borrower's incentives to stay solvent; (b) Reaffirmations -- renegotiations -- have ambiguous efficiency effects in general, but the right to renegotiate is especially valuable for relatively p

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File URL: http://icfpub.som.yale.edu/publications/2425
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Bibliographic Info

Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm128.

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Date of creation: 01 Nov 1999
Date of revision: 01 Jul 2000
Handle: RePEc:ysm:somwrk:ysm128

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Web page: http://icf.som.yale.edu/
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  1. Gropp, Reint & Scholz, John Karl & White, Michelle J, 1997. "Personal Bankruptcy and Credit Supply and Demand," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 217-51, February.
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Cited by:
  1. Michelle J. White, 2005. "Economic Analysis of Corporate and Personal Bankruptcy Law," NBER Working Papers 11536, National Bureau of Economic Research, Inc.
  2. Wei Fan & Michelle J. White, 2002. "Personal Bankruptcy and the Level of Entrepreneurial Activity," NBER Working Papers 9340, National Bureau of Economic Research, Inc.
  3. Li, Wenli & Sarte, Pierre-Daniel, 2006. "U.S. consumer bankruptcy choice: The importance of general equilibrium effects," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 613-631, April.
  4. Iain Ramsay, 2012. "Between Neo-Liberalism and the Social Market: Approaches to Debt Adjustment and Consumer Insolvency in the EU," Journal of Consumer Policy, Springer, vol. 35(4), pages 421-441, December.
  5. Lin, Emily Y. & White, Michelle J., 2001. "Bankruptcy and the Market for Mortgage and Home Improvement Loans," Journal of Urban Economics, Elsevier, vol. 50(1), pages 138-162, July.
  6. Eva-Maria Steiger, 2006. "Ex-Ante vs. Ex-Post Efficiency in Personal Bankruptcy Proceedings," Papers on Strategic Interaction 2006-17, Max Planck Institute of Economics, Strategic Interaction Group.
  7. Jochen Bigus & Eva-Maria Steiger, 2006. "When it pays to be honest: How a variable period of good conduct can improve incentives in personal bankruptcy proceedings," European Journal of Law and Economics, Springer, vol. 22(3), pages 233-253, November.
  8. Wenli Li, 2001. "To forgive or not to forgive : an analysis of U.S. consumer bankruptcy choices," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 1-22.
  9. Michelle J. White, 2011. "Corporate and Personal Bankruptcy Law," NBER Working Papers 17237, National Bureau of Economic Research, Inc.

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