Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
967168 | Journal of Monetary Economics | 2008 | 16 Pages |
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
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Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Marina Pavan,