Strategic or Non-Strategic: The Role of Financial Benefit in Bankruptcy

Li Gan (), Tarun Sabarwal and Shuoxun Zhang

No 201402, WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS from University of Kansas, Department of Economics

Abstract: A partial test for strategic behavior in bankruptcy filing may be formulated by testing whether consumers manipulate their debt and filing decision jointly, or not: that is, testing for endogeneity of financial benefit and the bankruptcy filing decision. Using joint maximum likelihood estimation of an extended discrete choice model, test results are consistent with non-strategic filing: financial benefit is exogenous to the filing decision. This result is confirmed in two different datasets (PSID and SCF). This result is consistent with an ex ante low net gain from a bankruptcy filing; a type of “rational inattention” to rare events such as bankruptcy.

Keywords: Consumer bankruptcy; personal bankruptcy; adverse events; strategic filing (search for similar items in EconPapers)
JEL-codes: D12 D14 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2014-02, Revised 2014-02
New Economics Papers: this item is included in nep-dcm
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Related works:
Journal Article: STRATEGIC OR NONSTRATEGIC: THE ROLE OF FINANCIAL BENEFIT IN BANKRUPTCY (2015)
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