Faculty Publications - College of Business
Document Type
Article
Publication Date
1995
Abstract
The value of the option to default on unsecured credit contracts is estimated and found to be significantly impacted by state and federal laws governing creditors' collection practices and bankruptcy. The data suggest that the expected value of the option to default influences debtors' choices in default and is correlated with their use of their credit cards before default. Cardholders who use their lines of credit very intensely before default are significantly more likely to make choices in default which allow them to realize a greater benefit from default. Furthermore, these results offer a possible explanation for consumers' seeming insensitivity to interest rates charged on revolving lines of credit.
Recommended Citation
Sullivan, A Charlene and Worden, Debra, "Credit Cards and The Option to Default" (1995). Faculty Publications - College of Business. 39.
https://digitalcommons.georgefox.edu/gfsb/39
Comments
Originally published in Financial Services Review, 4(2) Fall 1995.
http://academyfinancial.org/financial-services-review/