Search Results
Working Paper
Does the Relative Income of Peers Cause Financial Distress? Evidence from Lottery Winners and Neighboring Bankruptcies
SUPERSEDED BY WP 18-22 We examine whether relative income differences among peers can generate financial distress. Using lottery winnings as plausibly exogenous variations in the relative income of peers, we find that the dollar magnitude of a lottery win of one neighbor increases subsequent borrowing and bankruptcies among other neighbors. We also examine which factors may mitigate lenders? bankruptcy risk in these neighborhoods. We show that bankruptcy filers can obtain secured but not unsecured debt, and lenders provide secured credit to low-risk but not high-risk debtors. In addition, we ...
Working Paper
Did the ACA's Dependent Coverage Mandate Reduce Financial Distress for Young Adults?
We analyze whether the passage of the Affordable Care Act's dependent coverage mandate in 2010 reduced financial distress for young adults. U sing nationally representative, anonymized consumer credit report information, we find that young adults covered by the mandate lowered their past due debt, had fewer delinquencies, and had a reduced probability of filing for bankruptcy. These effects are stronger in geographic areas that experienced higher uninsured rates for young adults prior to the mandate's implementation. Our estimates also show that some improvements are transitory because they ...
Working Paper
Personal Bankruptcy as a Real Option
We provide a novel explanation to the longstanding puzzle of the ?missing bankruptcy ?lings.? Even though a household with a negative net worth will receive contemporaneous bene?t from bankruptcy, there may be greater insurance value from delaying the ?ling. Household bankruptcy is thus an American-style put option, which is not necessarily exercised even if the option is "in the money." Based on the value functions in the household?s dynamic programming problem, we formulate the value of the bankruptcy option as well as the exercise price. We estimate a life-cycle model in which households ...
Working Paper
Does inequality cause financial distress? Evidence from lottery winners and neighboring bankruptcies
Revised Oct 2016. We test the hypothesis that income inequality causes financial distress. To identify the effect of income inequality, we examine lottery prizes of random dollar magnitudes in the context of very small neighborhoods (13 households on average). We find that a C$1,000 increase in the lottery prize causes a 2.4% rise in subsequent bankruptcies among the winners? close neighbors. We also provide evidence of conspicuous consumption as a mechanism for this causal relationship. The size of lottery prizes increases the value of visible assets (houses, cars, motorcycles), but not ...
Working Paper
Health Insurance and Young Adult Financial Distress
We study the financial effects of health insurance for young adults using the Affordable Care Act’s dependent coverage mandate as a source of exogenous variation. Using nationally repre-sentative, anonymized credit report and publicly available survey data on medical expenditures, we exploit the mandate’s implementation in 2010 and its automatic disenrollment mechanism at age 26. Our estimates show that increasing access to health insurance lowered young adults’ out-of-pocket medical expenditures, debt in third-party collections, and the probability of per-sonal bankruptcy. However, ...
Discussion Paper
Consumer use of fraud alerts and credit freezes: an empirical analysis
Fraud alerts ? initial fraud alerts, extended fraud alerts, and credit freezes ? help protect consumers from the consequences of identity theft. At the same time, they may impose costs on lenders, credit bureaus, and, in some instances, consumers. We analyze a unique data set of anonymized credit bureau files to understand how consumers use these alerts. We document the frequency and persistence of fraud alerts and credit freezes. Using the experience of the data breach at the South Carolina Department of Revenue, we show that consumers who file initial fraud alerts or credit freezes likely ...
Working Paper
Financial Consequences of Identity Theft: Evidence from Consumer Credit Bureau Records
This paper examines how a negative shock to the security of personal finances due to severe identity theft changes consumer credit behavior. Using a unique data set of consumer credit records and alerts indicating identity theft and the exogenous timing of victimization, we show that the immediate effects of fraud on credit files are typically negative, small, and transitory. After those immediate effects fade, identity theft victims experience persistent, positive changes in credit characteristics, including improved Risk Scores. Consumers also exhibit caution with credit by having fewer ...
Working Paper
Peers’ Income and Financial Distress: Evidence from Lottery Winners and Neighboring Bankruptcies
SUPRSEDES WP 18-16 We examine whether relative income differences among peers can generate financial distress. Using lottery winnings as plausibly exogenous variations in the relative income of peers, we find that the dollar magnitude of a lottery win of one neighbor increases subsequent borrowing and bankruptcies among other neighbors. We also examine which factors may mitigate lenders? bankruptcy risk in these neighborhoods. We show that bankruptcy filers obtain more secured but not unsecured debt, and lenders provide additional credit to low-risk but not high-risk debtors. In addition, we ...
Working Paper
Identity theft as a teachable moment
This paper examines how instances of identity theft that are sufficiently severe to induce consumers to place an extended fraud alert in their credit reports affect their risk scores, delinquencies, and other credit bureau variables on impact and thereafter. We show that for many consumers these effects are relatively small and transitory. However, for a significant number of consumers, especially those with lower risk scores prior to the event, there are more persistent and generally positive effects on credit bureau variables, including risk scores. We argue that these positive changes for ...
Working Paper
Missouri’s Medicaid Contraction and Consumer Financial Outcomes
In July 2005, a set of cuts to Medicaid eligibility and coverage went into effect in the state of Missouri. These cuts resulted in the elimination of the Medical Assistance for Workers with Disabilities program, more stringent eligibility requirements, and less generous Medicaid coverage for those who retained their eligibility. Overall, these cuts removed about 100,000 Missourians from the program and reduced the value of the insurance for the remaining enrollees. Using data from the Medical Expenditure Panel Survey, we show how these cuts increased out-of-pocket medical spending for ...