Credit Cards and The Option to Default

Authors

  • A. Charlene Sullivan Purdue University, 217 Kraunert Center, West Lafayette, IN 47907.
  • Debra Drecnik Worden George Fox College, 414 N. Meridian Street, Newberg, OR 97132.

DOI:

https://doi.org/10.1016/1057-0810(95)90007-1

Abstract

The value of the option to default on unsecured credit contracts is estimated and found to be signij?cantly impacted by state and federal laws governing creditors’ collection practices and bankruptcy. Thedatasuggest thattheexpected valueoftheoptiontodefault 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 signtjiiantly 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 insensitivityto interest rates charged on revolving lines of credit.

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Published

1995-12-30

How to Cite

Sullivan, A. C., & Worden, D. D. (1995). Credit Cards and The Option to Default. Financial Services Review, 4(2), 123–136. https://doi.org/10.1016/1057-0810(95)90007-1

Issue

Vol. 4 No. 2 (1995): Financial Services Review

Section

New Original Submission

License

Copyright (c) 1995 JAI Press Inc.

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