Angry Borrowers: Ex-Post Effects of Social Shaming on Debt Repayment

Abstract

We examine the consequences of an intrusive debt-collection tactic that targets delinquent borrowers’ social circles. Our identification strategy relies on the fact that some of the delinquent loans are not worked on due to collection agents’ excessive workload. Using two approaches to estimate the local treatment effect, we show that this social-shaming tactic backfires and substantially increases the borrowers’ default rate. Borrowers with better outside options for credit access and male borrowers respond more strongly after they are shamed socially. These findings are in general consistent with the negative reciprocity interpretation: angered borrowers retaliate by defaulting on their loans.

Keywords: Behavioral Finance, Social Shaming, Debt Collection, Reciprocity, Privacy Infringement

JEL Classification: D14, D18, G41