Modeling the Revolving Revolution: The Debt Collection Channel

Lukasz Drozd and Ricardo Serrano-Padial

No 17-2, Working Papers from Federal Reserve Bank of Philadelphia

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 (search for similar items in EconPapers)
JEL-codes: D91 E21 G20 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2017-01-12
New Economics Papers: this item is included in nep-ban, nep-mac and nep-pay
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Citations: View citations in EconPapers (21)

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Related works:
Journal Article: Modeling the Revolving Revolution: The Debt Collection Channel (2017)
Working Paper: Modeling the Revolving Revolution: The Debt Collection Channel (2016)
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