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Author:Scholnick, Barry 

Working Paper
How Wealth and Age Interact to Affect Entrepreneurship

Using wealth windfalls from lottery winnings and matched employer-employee tax files, we compare the effect of additional wealth on the entrepreneurial activity of older and younger individuals. We find that additional wealth leads older winners (aged 55 and older) to reduce business ownership and scale. In contrast, additional wealth leads younger winners to increase business ownership and performance. We also show that extra lottery wealth reduces the wage labor supply of both younger and older individuals. Thus, while younger lottery winners reduce wage labor to increase entrepreneurship, ...
Working Papers , Paper 25-03

Working Paper
Who is screened out of social insurance programs by entry barriers? Evidence from consumer bankruptcies

Entry barriers into social insurance programs will be effective screening devices if they cause only those individuals receiving higher benefits from a program to participate in that program. We find evidence for this by using plausibly exogenous variations in travel-related entry costs into the Canadian consumer bankruptcy system. Using detailed balance sheet and travel data, we find that higher travel-related entry costs reduce bankruptcies from individuals with lower financial benefits of bankruptcy (unsecured debt discharged, minus secured assets forgone). When compared across filers, ...
Working Papers , Paper 15-40

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 Papers , Paper 16-4

Working Paper
The Causes of Household Bankruptcy: The Interaction of Income Shocks and Balance Sheets

We examine how household balance sheets and income statements interact to affect bankruptcy decisions following an exogenous income shock. For identification, we exploit government payments in one but not any other Canadian province that varied exogenously based on family size. Receiving a larger income shock from the payment (relative to household income) reduces the count of bankruptcies, with fewer remaining filers having higher net balance sheet benefits of bankruptcy (unsecured debt discharged minus liquidated assets forgone). Receiving an income shock thus causes households that would ...
Working Papers , Paper 16-19

Working Paper
Reducing Strategic Default in a Financial Crisis

We document that increasing penalties for default reduces strategic default in financial crises by exploiting the 2009 changes to Canadian consumer insolvency regulations. Our novelty is that the incentives from increasing penalties for default operate in the opposite direction from incentives in more typical financial crisis policy interventions, which increase the liquidity of debtors. We can identify strategic default because our policy intervention is independent of debtors’ liquidity and initial selection into long-term debt contracts. Our results imply that even insolvent debtors can ...
Working Papers , Paper 21-36

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 Papers , Paper 18-22

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 Papers , Paper 18-16

Working Paper
How do exogenous shocks cause bankruptcy? Balance sheet and income statement channels

We are the first to examine whether exogenous shocks cause personal bankruptcy through the balance sheet channel and/or the income statement channel. For identification, we examine the effect of exogenous, politically motivated government payments on 200,000 Canadian bankruptcy filings. We find support for the balance sheet channel, in that receipt of the exogenous cash increases the net balance sheet benefits of bankruptcy (unsecured debt discharged minus liquidated assets forgone) required by filers. We also find limited support for the income statement channel, in that exogenous payments ...
Working Papers , Paper 14-17

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 Papers , Paper 19-46

Working Paper
Debtor Fraud in Consumer Debt Renegotiation

We study how forcing financially distressed consumer debtors to repay a larger fraction of debt can lead them to misreport data fraudulently. Using a plausibly exogenous policy change that required debtors to increase repayment to creditors, we document that debtors manipulated data to avoid higher repayment. Consistent with deliberate fraud, data manipulators traveled farther to find more lenient insolvency professionals who, historically, approved more potentially fraudulent filings. Finally, we find that those debtors who misreported income had a lower probability of default on their debt ...
Working Papers , Paper 22-35

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