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Federal Reserve Bank of Philadelphia
Modeling the Revolving Revolution: The Debt Collection Channel
We investigate the role of information technology (IT) in the collection of delinquent consumer debt. We argue that the widespread adoption of IT by the debt collection industry in the 1990s contributed to the observed expansion of unsecured risky lending such as credit cards. Our model stresses the importance of delinquency and private information about borrower solvency. The prevalence of delinquency implies that the costs of debt collection must be borne by lenders to sustain incentives to repay debt. IT mitigates informational asymmetries, allowing lenders to concentrate collection efforts on delinquent borrowers who are more likely to repay.
Cite this item
Lukasz A. Drozd & Ricardo Serrano-Padial, Modeling the Revolving Revolution: The Debt Collection Channel, Federal Reserve Bank of Philadelphia, Working Papers 17-2, 12 Jan 2017.
- D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- G20 - Financial Economics - - Financial Institutions and Services - - - General
Keywords: debt collection; credit cards; consumer credit; unsecured credit; revolving credit; moral hazard; costly state verification; informal bankruptcy; information technology
This item with handle RePEc:fip:fedpwp:17-2
is also listed on EconPapers
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