Abstract

http://ssrn.com/abstract=192575
 
 

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Regulating Consumer Bankruptcy: A Theoretical Inquiry


Barry E. Adler


New York University School of Law

Ben Polak


Yale University - Department of Economics

Alan Schwartz


Yale Law School

October 1999

Yale Law School, Program for Studies in Law, Economics and Public Policy, Working Paper No. 228

Abstract:     
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 poor persons; (c) Giving consumers the ex post choice regarding which bankruptcy chapter to use also provides more insurance but, by making bankruptcy softer on debtors, has poor incentive effects; (d) Serious consideration should be given to expanding the scope of consumers' ability to contract about bankruptcy because private contracts are better than regulations at making context sensitive tradeoffs between risk and incentives.

Number of Pages in PDF File: 58

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Date posted: November 22, 1999  

Suggested Citation

Adler, Barry E. and Polak, Ben and Schwartz, Alan, Regulating Consumer Bankruptcy: A Theoretical Inquiry (October 1999). Yale Law School, Program for Studies in Law, Economics and Public Policy, Working Paper No. 228. Available at SSRN: http://ssrn.com/abstract=192575 or http://dx.doi.org/10.2139/ssrn.192575

Contact Information

Barry E. Adler
New York University School of Law ( email )
40 Washington Square South
New York, NY 10012-1099
United States
212-998-6660 (Phone)
212-995-4341 (Fax)
Benjamin Polak
Yale University - Department of Economics ( email )
28 Hillhouse Ave
New Haven, CT 06520-8268
United States
203-432-3590 (Phone)
203-432-5779 (Fax)
Alan Schwartz (Contact Author)
Yale Law School ( email )
P.O. Box 208215
New Haven, CT 06520-8215
United States
203-432-4030 (Phone)
203-432-8260 (Fax)
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