Personal bankruptcies in the United States have increased dramatically,
rising from 1.4 per thousand working age adults in 1970 to
8.5 in 2002. We use a heterogeneous agent life-cycle model with
competitive lenders to evaluate several commonly offered explanations.
We find that increased uncertainty (income shocks, expense
uncertainty) cannot account quantitatively for the rise in bankruptcies.
Instead, the rise in filings appears mainly to reflect changes in
the credit market environment: a decrease in the transaction cost
of lending and in the cost of bankruptcy. We also argue that the
abolition of usury laws and other legal changes were unimportant.
(JEL D14, E44, G21, G28)
Livshits, Igor, James MacGee, and Michèle Tertilt.
"Accounting for the Rise in Consumer Bankruptcies."
American Economic Journal: Macroeconomics,
Financial Markets and the Macroeconomy
Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
Financial Institutions and Services: Government Policy and Regulation