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Accounting for the Rise in Consumer Bankruptcies

  • Igor Livshits
  • James MacGee
  • Michèle Tertilt

Personal bankruptcies in the United States have increased dramatically, rising from 1.4 per thousand working age adults in 1970 to 8.5 in 2002. We use a heterogeneous agent life-cycle model with competitive lenders to evaluate several commonly offered explanations. We find that increased uncertainty (income shocks, expense uncertainty) cannot account quantitatively for the rise in bankruptcies. Instead, the rise in filings appears mainly to reflect changes in the credit market environment: a decrease in the transaction cost of lending and in the cost of bankruptcy. We also argue that the abolition of usury laws and other legal changes were unimportant. (JEL D14, E44, G21, G28)

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Article provided by American Economic Association in its journal American Economic Journal: Macroeconomics.

Volume (Year): 2 (2010)
Issue (Month): 2 (April)
Pages: 165-93

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Handle: RePEc:aea:aejmac:v:2:y:2010:i:2:p:165-93
Note: DOI: 10.1257/mac.2.2.165
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