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Journal Article
The buck stops where? The role of limited liability in economics
Smith, Stephen D.; Noe, Thomas H. (1997-01-01)
Over the last few centuries laws have increasingly protected individuals and corporations from liability resulting from bad economic outcomes. This evolution in liability provisions, by many accounts, has significantly influenced both the level and distribution of contemporary economic output as well as the allocation of financial resources in today's financial markets. ; Through a review of an extensive and growing literature, the authors of this article consider how limited liability affects investment, labor, and financing decisions made by individuals and corporations as well as ...
Economic Review , Volume 82 , Issue Q 1 , Pages 46-56

Working Paper
Earnings Misperceptions and Household Distress
Sanchez, Juan M.; Song, Stefan (2025-11-03)
Households learn whether income changes are temporary or persistent from their own paychecks. This paper develops a quantitative model of financial distress that incorporates this inference and estimates the extent to which households overweight recent outcomes—diagnostic expectations—using survey data on income beliefs. The model explains distress without assuming extreme impatience and aligns with the observed relationship between income and interest rates. Learning and diagnostic expectations account for about half of delinquencies and one-third of bankruptcies. Diagnostic expectations ...
Working Papers , Paper 2025-030

Journal Article
Know when to fold 'em: how the corporate bankruptcy system benefits and hinders the economy
Slivinski, Stephen (2009-01)
Related links : https://www.richmondfed.org/-/media/richmondfedorg/publications/research/econ_focus/2009/winter/cover_weblinks.cfm
Econ Focus , Volume 13 , Issue Win , Pages 14-17

Working Paper
Consumer Bankruptcy, Mortgage Default and Labor Supply
Li, Wenli; Meghir, Costas; Oswald, Florian (2022-08-30)
We specify and estimate a lifecycle model of consumption, housing demand and labor supply in an environment where individuals may file for bankruptcy or default on their mortgage. Uncertainty in the model is driven by house price shocks, education specific productivity shocks, and catastrophic consumption events, while bankruptcy is governed by the basic institutional framework in the U.S. as implied by Chapter 7 and Chapter 13. The model is estimated using micro data on credit reports and mortgages combined with data from the American Community Survey. We use the model to understand the ...
Working Papers , Paper 22-26

Working Paper
Lending Standards and Borrowing Premia in Unsecured Credit Markets
Dempsey, Kyle; Ionescu, Felicia (2021-06-24)
Using administrative data from Y-14M and Equifax, we find evidence for large spreads in excess of those implied by default risk in the U.S. unsecured credit market. These borrowing premia vary widely by borrower risk and imply a nearly flat relationship between loan prices and repayment probabilities, at odds with existing theories. To close this gap, we incorporate supply frictions – a tractably specified form of lending standards – into a model of unsecured credit with aggregate shocks. Our model matches the empirical incidence of both risk and borrowing premia. Both the level and ...
Finance and Economics Discussion Series , Paper 2021-039

Journal Article
Will higher corporate debt worsen future recessions?
Faust, Jon (1990-03)
Economic Review , Volume 75 , Issue Mar , Pages 19-34

Journal Article
Financial literacy consortium develops plan to educate consumers
anonymous (1998-01)
Financial Update , Volume 11 , Issue Jan , Pages 3

Working Paper
The anatomy of U.S. personal bankruptcy under Chapter 13
Sarte, Pierre-Daniel G.; Li, Wenli (2007)
By compiling a novel data set from bankruptcy court dockets recorded in Delaware between 2001 and 2002, the authors build and estimate a structural model of Chapter 13 bankruptcy. This allows them to quantify how key debtor characteristics, including whether they are experiencing bankruptcy for the first time, their past-due secured debt at the time of filing, and income in excess of that required for basic maintenance, affect the distribution of creditor recovery rates. The analysis further reveals that changes in debtors' conditions during bankruptcy play a nontrivial role in governing ...
Working Papers , Paper 07-31

Working Paper
Optimal personal bankruptcy design : A Mirrlees approach
Grochulski, Borys (2008)
In this paper, we develop a normative theory of unsecured consumer credit and personal bankruptcy based on the optimal trade-off between incentives and insurance. First, in order to characterize this trade-off, we solve a dynamic moral hazard problem in which agents' private effort decisions influence the life-cycle profiles of their earnings. We then show how the optimal allocation of individual effort and consumption can be implemented in a market equilibrium in which (i) agents and intermediaries repeatedly trade in secured and unsecured debt instruments, and (ii) agents obtain ...
Working Paper , Paper 08-05

Journal Article
Recent changes in the consumer bankruptcy laws
Kowalewski, K. J. (1985-02)
A discussion of the effects of, and apparent problems caused by, the Bankruptcy Reform Act of 1978, with a look at the likely impact of the 1984 amendments to the Act.
Economic Commentary , Issue Feb

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