انتخاب ورشکستگی مصرف کننده ایالات متحده: اهمیت اثرات تعادل عمومی

We study the implications of U.S. personal bankruptcy rules for resource allocation and welfare. Our analysis shows that general equilibrium considerations along with bankruptcy chapter choice and production matter crucially for the effects of policy reform. Contrary to previous work, we find that completely eliminating bankruptcy provisions causes significant declines in output and welfare by reducing capital formation and labor input. Furthermore, subjecting Chapter 7 filers to means testing, as suggested by recent legislative proposals, would not improve upon current bankruptcy provisions and, at best, leave aggregate filings, output, and welfare unchanged. However, we do find that an alternative tightening of Chapter 7, in the form of lower asset exemptions, can increase economic efficiency.

The economics of personal bankruptcy is a subject of increasing interest for economists in general and macroeconomists in particular. By allowing households to stop or delay the repayment of debts, the option to file for bankruptcy helps complete markets and promotes risk sharing. Thus, recent research has focused on the implications of bankruptcy rules for resource allocation and welfare. This literature, however, has confined itself to both partial equilibrium settings and only one of the options available to debtors under current U.S. bankruptcy law.1 In contrast, we show that the analysis of consumer bankruptcy requires (i) a general equilibrium framework with endogenous factor supply, risk premia, and wages, and (ii) both bankruptcy chapters currently available to debtors, Chapters 7 and 13, each of which has its own incentive effects on labor supply and capital formation. Any study of U.S. consumer bankruptcy that ignores these features is potentially misleading for two reasons. First, defaulting under Chapter 13, while letting debtors keep their assets, requires them to enter a partial repayment plan that acts as a powerful wage tax (Posner, 1999 and Wang and White, 2000). Hence, by discouraging labor effort, Chapter 13 directly affects production and welfare. Second, by allowing for the discharge of all unsecured debt net of exemptions, Chapter 7 defaults affect risk premia which then induce further changes in the overall volume of debt and, ultimately, capital accumulation. Contrary to previous work, our analysis indicates that eliminating bankruptcy options entirely carries significant social costs. It is true that getting rid of bankruptcy provisions remove important ex post bankruptcy costs such as exclusion from credit markets. Absent production, and without any feedback effects from prices, this elimination of bankruptcy costs is a driving force that leads to the significant welfare gains found in the existing literature. However, with production explicitly considered, changes in risk premia lead to declines in output. Specifically, because the risk premium falls sharply as consumers can no longer default, households find it cheaper to borrow. While this effect is immaterial for efficiency concerns in exchange economies, it directly reduces the stock of capital available for production in our framework. In addition, the fall in capital reduces labor demand. With both lower capital formation and labor input, our model yields a decline in output that more than offsets the welfare gains associated with the elimination of bankruptcy costs. Our analysis also indicates that tightening Chapter 7 provisions through “means testing”, as suggested by recent congressional reform proposals aimed at restricting Chapter 7 to only the neediest households, leads not to just greater debt repayment but also more Chapter 13 bankruptcies. Contrary to the stated objectives of the proposals, these effects can induce a fall rather than an increase in output and welfare. Because Chapter 13 repayment plans reduce expected earnings, a higher rate of Chapter 13 bankruptcies discourages labor effort. Furthermore, the fact that creditors collect more effectively on their loans under tighter Chapter 7 provisions lowers the lending rate which then leads to greater consumer debt. This greater volume of debt in turn reduces the available supply of capital and, given the reduction in labor input, output and welfare fall. 2 Finally, we show that an alternative tightening of Chapter 7 provisions, in the form of lower asset exemptions, can increase economic efficiency. This proposal helps increase output and welfare because lower Chapter 7 asset exemptions paradoxically lead to more Chapter 7 and fewer Chapter 13 bankruptcies. With lower exemption levels under Chapter 7, the greater confiscation of assets in the event of default reduces the incentive to save and, consequently, increases the likelihood of default. With default more likely, the risk premium rises which induces a lower level of debt. This effect helps raise the supply of available capital. At the same time, a higher lending rate increases the burden of loan repayment under Chapter 13 which leads to a fall in Chapter 13 bankruptcies. Given that Chapter 13 acts as a wage tax, labor input then correspondingly rises. The end result is an increase in both capital and labor that directly contribute to raising output and welfare. Our modeling strategy follows most closely that of Athreya (2002) and Li (2001). While Athreya (2002) studies bankruptcy filings under Chapter 7 only, Li (2001) investigates both Chapters 7 and 13 filings but does so in a two-period framework. As in Athreya (2002), Chatterjee et al. (2002) analyze unsecured consumer loans but allow for default only under Chapter 7. Their innovation lies in the explicit modeling of a menu of credit levels and interest rates offered by credit suppliers. Livshits et al. (2001) focus on income garnishment in a partial equilibrium life-cycle framework. None of the above papers allows for economy-wide production. Wang and White (2000) study optimal bankruptcy proceedings. Here, in contrast, existing provisions are taken as given. This paper is organized as follows. Section 2 provides an overview of U.S. bankruptcy law. In Section 3, we present our theoretical framework. Section 4 discusses the trade-offs between bankruptcy Chapters. In Section 5, we carry out quantitative evaluations of several policy experiments. Section 6 offers some concluding remarks.

This paper extends the existing literature on consumer bankruptcy by simultaneously incorporating three new key features in a general equilibrium framework. First, households are given the option to file for bankruptcy under Chapter 13. Second, production is explicitly taken into account. Third, households may simultaneously borrow and save at different rates. These new elements give rise to substantive findings regarding bankruptcy reform. First, we find that eliminating bankruptcy options entirely carries significant social costs. In particular, the change in prices associated with the elimination of bankruptcy provisions is directly linked to a reduction in capital formation and a corresponding inward shift in labor demand. The resulting decline in output more than offsets the welfare gains associated with the elimination of ex post bankruptcy costs such as exclusion from credit. Second, our analysis shows that a tightening of Chapter 7 provisions through means testing, as suggested by the many reform proposals introduced before Congress since 1997, leads not to just greater debt repayment but also more Chapter 13 bankruptcies. Contrary to the goal of the proposals, these effects can induce a fall rather than an increase in output and welfare. Finally, we also demonstrate that an alternative tightening of Chapter 7 provisions, in the form lower asset exemptions, can increase economic efficiency. In all three of these experiments, general equilibrium effects matter crucially for the outcomes. Therefore, bankruptcy policy recommendations that ignore these effects can potentially be very misleading.