Targeted Debt Relief and the Origins of Financial Distress: Experimental Evidence from Distressed Credit Card Borrowers / Will Dobbie, Jae Song.

Format:

Book

Author/Creator:

Dobbie, Will.

Contributor:

National Bureau of Economic Research.

Song, Jae.

Series:

Working Paper Series (National Bureau of Economic Research) no. w23545.

NBER working paper series no. w23545

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Targeted Debt Relief and the Origins of Financial Distress

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2017.

Summary:

We study the drivers of financial distress using a large-scale field experiment that offered randomly selected borrowers a combination of (i) immediate payment reductions to target short-run liquidity constraints and (ii) delayed debt write-downs to target long-run debt constraints. We identify the separate effects of the payment reductions and debt write-downs using variation from both the experiment and cross-sectional differences in treatment intensity. We find that the debt write-downs significantly improved both financial and labor market outcomes despite not taking effect for three to five years. In sharp contrast, there were no positive effects of the more immediate payment reductions. These results run counter to the widespread view that financial distress is largely the result of short-run constraints.

Notes:

Print version record

June 2017.