 Insurance or deliberate use of the bankruptcy law for financial gain? Testing for heterogeneous filing behaviors in the United StatesLi Gan (), Manuel Hernandez and Shuoxun Zhang Economic Modelling, 2021, vol. 105, issue C Abstract: Consumer bankruptcy can serve as insurance against large financial shocks but may also provide an opportunity for deliberate use. This paper proposes and implements a model to test for the coexistence of heterogeneous filing behaviors in the bankruptcy decision. We identify two filing behaviors using data from the United States. One group can be associated with individuals who do not intend to deliberately use the bankruptcy law in the absence of an adverse event, while the second group is more consistent with a “strategic” behavior that exhibits a higher filing probability and financial benefit from filing. The larger prevalence of the first group supports the insurance function of bankruptcy. We further show that the model can help to better identify eventual filers compared to standard models that do not allow for different filing behaviors. The proposed model can be easily extended to assess heterogeneous behaviors in credit and insurance markets. Keywords: Heterogeneous filing behavior; Consumer bankruptcy; Financial gain; Debt manipulation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:105:y:2021:i:c:s0264999321002625 DOI: 10.1016/j.econmod.2021.105673 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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