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Working Paper
The economics of debt collection: enforcement of consumer credit contracts
Superceded by WP 18-04 In the U.S., creditors often outsource the task of obtaining repayment from defaulting borrowers to third-party debt collection agencies. This paper argues that an important incentive for this is creditors' concerns about their reputations. Using a model along the lines of the common agency framework, we show that, under certain conditions, debt collection agencies use harsher debt collection practices than original creditors would use on their own. This appears to be consistent with empirical evidence. The model also fits several other empirical facts about the ...