Consumer durables and risky borrowing: The effects of bankruptcy protection

Marina Pavan

Journal of Monetary Economics, 2008, vol. 55, issue 8, 1441-1456

Abstract: There exist substantial differences in the generosity of bankruptcy protection across U.S. states. This paper exploits cross-state variation in exemption levels to assess the dual role of durable goods as informal collateral for unsecured debt and self-insurance against bad shocks to earnings. The generosity of bankruptcy protection is found to change both the incentives and the ability of households to accumulate durable wealth. The gains from a high level of insurance are reduced by the effect of tighter credit constraints, so that the net effects of a change in exemption are very small. A more generous bankruptcy regulation reduces net durable wealth in the first half of the life cycle. In addition, the optimal level of exemption is positive but low.

Keywords: Bankruptcy; Durable; wealth; Unsecured; debt; Saving (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (31)

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Working Paper: Consumer Durables and Risky Borrowing: the Effects of Bankruptcy Protection (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:55:y:2008:i:8:p:1441-1456

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