Modeling the Revolving Revolution: The Debt Collection Channel
- (pp. 897-930)
(Complimentary)
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.Citation
Drozd, Lukasz A., and Ricardo Serrano-Padial. 2017. "Modeling the Revolving Revolution: The Debt Collection Channel." American Economic Review, 107 (3): 897-930. DOI: 10.1257/aer.20131029Additional Materials
JEL Classification
- D14 Household Saving; Personal Finance
- D82 Asymmetric and Private Information; Mechanism Design
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- L84 Personal, Professional, and Business Services
- M15 IT Management
- O33 Technological Change: Choices and Consequences; Diffusion Processes