Recent Developments in Consumer Credit and Default Literature

Livshits, Igor

doi:10.1002/9781119158424.ch2

Cited by 14 publications

(18 citation statements)

References 89 publications

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“…Our paper contributes to the literature on creditor remedies, reviewed in Hynes and Posner (2002), Athreya (2005), and Livshits (2014). The earliest paper we are aware of that focuses on debt collection is by Krumbein (1924), and it provides a detailed description of the debt collection market as it existed nearly 100 years ago.…”

Section: Introductionmentioning

confidence: 95%

The Economics of Debt Collection: Enforcement of Consumer Credit Contracts

Fedaseyeu¹,

Hunt²

2015

Working Paper (Federal Reserve Bank of Philadelphia)

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In the U.S., creditors often outsource the task of obtaining repayment from defaulting borrowers to third-party debt collection agencies. This paper argues that an important incentive for this is creditors' concerns about their reputations. Using a model along the lines of the common agency framework, we show that, under certain conditions, debt collection agencies use harsher debt collection practices than original creditors would use on their own. This appears to be consistent with empirical evidence. The model also fits several other empirical facts about the structure of the debt collection industry and its evolution over time. We show that the existence of third-party debt collectors may improve consumer welfare if credit markets contain a sufficiently large share of opportunistic borrowers who would not repay their debts unless faced with "harsh" debt collection practices. In other cases, the presence of third-party debt collectors can result in lower consumer welfare. The model provides insight into which policy interventions may improve the functioning of the collections market.

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Section: Introductionmentioning

confidence: 95%

The Economics of Debt Collection: Enforcement of Consumer Credit Contracts

Fedaseyeu¹,

Hunt²

2015

Working Paper (Federal Reserve Bank of Philadelphia)

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“…Although a large literature has examined consumer credit markets, it has typically assumed exclusivity of debt contract-see, e.g., Chatterjee et al (2007), Livshits et al (2007), and surveys by Athreya (2005) and Livshits (2015). While debt dilution is a prominent feature of recent papers on defaultable debt in international finance-see, e.g., Eyigungor (2012, 2015), and Arellano and Ramanarayanan (2012)-the questions studied in that literature are very different from those in the consumer credit literature.…”

Section: Introductionmentioning

confidence: 99%

Building Credit History with Heterogeneously Informed Lenders

Kovrijnykh

Livshits

Zetlin‐Jones

2019

Working Paper (Federal Reserve Bank of Philadelphia)

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This paper examines a novel mechanism of credit-history building as a way of aggregating information across multiple lenders. We build a dynamic model with multiple competing lenders, who have heterogeneous private information about a consumer's creditworthiness, and extend credit over multiple stages. Acquiring a loan at an early stage serves as a positive signal-it allows the borrower to convey to other lenders the existence of a positively informed lender (advancing that early loan)-thereby convincing other lenders to extend further credit in future stages. This signaling may be costly to the least risky borrowers for two reasons. First, taking on an early loan may involve cross-subsidization from the least risky borrowers to more risky borrowers. Second, the least risky borrowers may take inefficiently large loans relative to the symmetric-information benchmark. We demonstrate that, despite these two possible costs, the least risky borrowers often prefer these equilibria to those without information aggregation. Our analysis offers an interesting and novel insight into debt dilution. Contrary to the conventional wisdom, repayment of the early loan is more likely when a borrower subsequently takes on a larger rather than a smaller additional loan. This result hinges on a selection effect: larger subsequent loans are only given to the least risky borrowers.

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“…The starting point for our analysis is a simple model of household borrowing and risky investment. Following the large literature on bankruptcy protection (see White [2011], Livshits [2014] for overviews), downside protection has two opposing effects. First, less collateral is available and this will shift the credit supply curve inward.…”

Section: Introductionmentioning

confidence: 99%

Bankruptcy and Investment: Evidence from Changes in Marital Property Laws in the U.S. South, 1840-1850

Koudijs¹,

Salisbury²

2016

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Wright for comments and suggestions. All errors are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

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Recent Developments in Consumer Credit and Default Literature

Cited by 14 publications

References 89 publications

The Economics of Debt Collection: Enforcement of Consumer Credit Contracts

The Economics of Debt Collection: Enforcement of Consumer Credit Contracts

Building Credit History with Heterogeneously Informed Lenders

Bankruptcy and Investment: Evidence from Changes in Marital Property Laws in the U.S. South, 1840-1850

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