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Regulating Consumer Bankruptcy: A Theoretical Inquiry

  • Barry Adler
  • Ben Polak
  • Alan Schwartz

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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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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  1. Reint Gropp & John Karl Scholz & Michelle White, 1996. "Personal Bankruptcy and Credit Supply and Demand," NBER Working Papers 5653, National Bureau of Economic Research, Inc.
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