Consumption smoothing and debtor protections

• 成果类型: Article
• 署名作者: Pattison, Nathaniel
• 署名单位: Southern Methodist University
• 刊物名称: JOURNAL OF PUBLIC ECONOMICS
• ISSN/ISSBN: 0047-2727
• DOI: 10.1016/j.jpubeco.2020.104306
• 发表日期: 2020
• 关键词: social insurance; bankruptcy; Consumer credit; consumption smoothing; Sufficient statistic

摘要

Protections for defaulting debtors are a widely used form of consumption insurance. This paper evaluates the costs and benefits of this insurance, both inside and outside of bankruptcy. First, I show that consumption declines by 6% upon default, revealing a potential role for greater debtor protections to smooth consumption. Second, I use changes in states' laws to estimate the impact of one type of debtor protection, asset exemptions, on repayment in default and interest rates. While higher exemptions smooth consumption by reducing collection in default, the interest rate cost is large relative to the benefits. Adapting a sufficient statistics formula from the literature, the estimates imply that the cost of additional exemption protection exceeds what debtors are willing to pay. (c) 2020 Elsevier B.V. All rights reserved.