Consumer Bankruptcy: A Fresh Start

Livshits, Igor; MacGee, James; Tertilt, Michèle

doi:10.1257/000282807780323514

Cited by 78 publications

(158 citation statements)

References 15 publications

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“…5 Attanasio, Kitao and Violante (2008) use a general equilibrium life cycle model with incomplete markets, endogenous labor decisions and medical expenditure shocks 2 Bewley (1986), Imrohoroglu (1989), Huggett (1993) and Aiyagari (1994) pioneered the literature. 3 For example, Livshits et al(2007) and Chatterjee et al(2007) suggested that medical expenditure shock is an important reason for consumer bankruptcy. Palumbo (1999), De Nardi et al(2006 and Scholz et al(2006) studied medical expenses for understanding the pattern of retirement savings.…”

mentioning

confidence: 99%

Health insurance and precautionary saving: A structural analysis

Hsu

2013

Review of Economic Dynamics

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Starr-McCluer (1996) documented an empirical finding that the US households covered by health insurance saved more than those without coverage, which is inconsistent with the standard consumption-saving theory. This study provides a structural analysis and suggests that institutional factors, in particular, a social insurance (safety net) system and an employment-based health insurance system, can account for this puzzling finding. A dynamic stochastic general equilibrium model is built that incorporates these two institutions with heterogeneous agents making decisions regarding saving, labor supply and health insurance endogenously when they are young. The model, in which agents save in a precautionary manner, can generate Starr-McCluer's empirical finding and it indicates that the empirical finding is not inconsistent with the standard theory of saving under uncertainty. Counterfactual experiments are performed to provide implications for empirical analyses and illustrate the danger of empirical work without a sound theoretical background. JEL Classification: E21, I38, D52Keywords: Precautionary Savings, Social Insurance, Employment-based Health Insurance. * GRIPS, 7-22-1 Roppongi, Minato-ku Tokyo 106-8677, Japan. Email: minchunghsu@grips.ac.jp. I wish to thank the editor and three anonymous referees for their valuable suggestions and comments on an earlier version of this paper. All errors are solely mine.

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confidence: 99%

Health insurance and precautionary saving: A structural analysis

Hsu

2013

Review of Economic Dynamics

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“…For a recent analysis quantifying the importance of belief-driven fluctuations in sovereign debt markets, see Bocola and Dovis (2016). For studies of individual, rather than sovereign, default of unsecured debt, see Chatterjee et al (2007) and Livshits et al (2007). In our model, there is a trade-off between the benefits of consumption smoothing and the increased vulnerability associated with increasing the level of debt.…”

Section: Figure 2: Government Debt In Selected European Countriesmentioning

confidence: 99%

Gambling for Redemption and Self-Fulfilling Debt Crises

Conesa

Kehoe

2015

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We develop a model for analyzing the sovereign debt crises of 2010-2013 in the Eurozone. The government sets its expenditure-debt policy optimally. The need to sell large quantities of bonds every period leaves the government vulnerable to self-fulfilling crises in which investors, anticipating a crisis, are unwilling to buy the bonds, thereby provoking the crisis. In this situation, the optimal policy of the government is to reduce its debt to a level where crises are not possible. If, however, the economy is in a recession where there is a positive probability of recovery in fiscal revenues, the government may optimally choose to "gamble for redemption," running deficits and increasing its debt, thereby increasing its vulnerability to crises.

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“…Table 6 shows mean consumption and decomposes the variance of consumption into two moments: the variance of mean consumption by age, a measure of intertemporal consumption smoothing, and the mean of consumption variance by age, a measure of intratemporal consumption smoothing. 28 Loan guarantees reduce mean consumption due to the combination of higher taxes, more borrowing, and more frequent default. The gain comes through a better distribution of consumption over the life cycle.…”

Section: Welfarementioning

confidence: 99%

“…Since their income profile 27 The analytical work of Jia (2011) is relevant here: he shows that as a qualititative matter, barring eligibility requirements, loan guarantees will lower welfare. 28 Specifically, we use the decomposition: var (log (c)) = var (E [log (c) |j]) + E [var (log (c) |j)] 29 If consumption sets can become empty, eliminating bankruptcy cannot be optimal. Athreya, Tam, and Young (2011) abstracts from expenditure shocks.…”

Section: Decomposing the Effect Of Taxes On Welfarementioning

confidence: 99%

Loan Guarantees for Consumer Credit Markets

2011

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Loan guarantees are arguably the most widely used policy intervention in credit markets, especially for consumers. This may be natural, as they have several features that, a priori, suggest that they might be particularly effective in improving allocations. However, despite this, little is actually known about the size of their effects on prices, allocations, and welfare.In this paper, we provide a quantitative assessment of loan guarantees, in the context of unsecured consumption loans. Our work is novel as it studies loan guarantees in a rich dynamic model where credit allocation is allowed to be affected by both limited commitment frictions and private information.Our findings suggest that consumer loan guarantees may be a powerful tool to alter allocations that, if carefully arranged, can improve welfare, sometimes significantly. Specifically, our key findings are that (i) under both symmetric and asymmetric information, guaranteeing small consumer loans nontrivially alters allocations, and strikingly, yields welfare improvements even after a key form of uncertainty-one's human capital level-has been realized, (ii) larger guarantees change allocations very significantly, but lower welfare, sometimes for all household-types, and (iii) substantial further gains are available when guarantees are restricted to households hit by large expenditure shocks. * We thank Larry Ausubel, Dean Corbae, Martin Gervais, Kevin Reffett, and participants in seminars at Arizona State, Georgia, Iowa, and the Consumer Credit and Bankruptcy Conference at the University of Cambridge for helpful comments and discussions. We also thank Brian Gaines and Jon Lecznar for assistance. The opinions expressed here are not necessarily those of the Federal Reserve Bank of Richmond or the Federal Reserve System.

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Consumer Bankruptcy: A Fresh Start

Cited by 78 publications

References 15 publications

Health insurance and precautionary saving: A structural analysis

Health insurance and precautionary saving: A structural analysis

Gambling for Redemption and Self-Fulfilling Debt Crises

Loan Guarantees for Consumer Credit Markets

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