Diego Legal-Cañisá Presents Research on Consumer Bankruptcy at NAMSES

Friday, July 19, 2019

In June, 2019, Diego Legal-Cañisá presented his paper "Unemployment Insurance with Consumer Bankruptcy" at the North American Meeting of the Econometric Society in Seattle, Washington. The data shows that Chapter 7 bankruptcy rates across counties and Unemployment Insurance (UI) generosity are negatively correlated. This fact suggests that Chapter 7 bankruptcy and UI are substitute programs and raises the question of about the implications of consumer bankruptcy for optimal UI. Diego constructed a model matching main statistics regarding the U.S. unsecured credit and labor markets, including the main features of Chapter 7 Bankruptcy and UI. The model successfully accounts for the negative relationship between bankruptcy rate and UI generosity observed in the data. In the model, for low levels of UI, a more generous UI reduces bankruptcy and allows more debt. As UI keep increasing, employment falls and lenders react by contracting credit supply. From an ex-ante welfare perspective, an increase in the replacement rate from 50% to 60% is welfare reducing when bankruptcy is allowed but would be welfare increasing without bankruptcy. The conference allowed Diego to get valuable feedback on his research and meet with prominent researchers in the field. It also resulted in an invitation to Diego to present his research at the Economics seminar series at VCU School of Business.