Modeling the Revolving Revolution: The Debt Collection Channel

55 Pages Posted: 15 Jan 2017

See all articles by Lukasz A. Drozd

Lukasz A. Drozd

University of Pennsylvania - The Wharton School

Ricardo Serrano-Padial

Drexel University, School of Economics

Date Written: 2017-01-12

Abstract

We investigate the role of information technology (IT) in the collection of delinquent consumer debt. We argue that the widespread adoption of IT by the debt collection industry in the 1990s contributed to the observed expansion of unsecured risky lending such as credit cards. Our model stresses the importance of delinquency and private information about borrower solvency. The prevalence of delinquency implies that the costs of debt collection must be borne by lenders to sustain incentives to repay debt. IT mitigates informational asymmetries, allowing lenders to concentrate collection efforts on delinquent borrowers who are more likely to repay.

Keywords: debt collection, credit cards, consumer credit, unsecured credit, revolving credit, moral hazard, costly state verification, informal bankruptcy, information technology

JEL Classification: D91, E21, G20

Suggested Citation

Drozd, Lukasz A. and Serrano-Padial, Ricardo, Modeling the Revolving Revolution: The Debt Collection Channel (2017-01-12). FRB of Philadelphia Working Paper No. 17-2, Available at SSRN: https://ssrn.com/abstract=2898711

Lukasz A. Drozd (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Ricardo Serrano-Padial

Drexel University, School of Economics ( email )

3220 Market St
Philadelphia, PA 19104
United States

HOME PAGE: http://www.serrano-padial.com

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
54
Abstract Views
422
rank
439,166
PlumX Metrics