The Economics of Bankruptcy provides a link to an excellent post by William Sjostrom over at Atlantic Blog. It discusses the problems of moral hazard and adverse selection that have to be considered when analyzing the economics of the credit markets.
In Who's To Blame For Bankruptcy, she frames the issue in terms of tempters (the credit car compoanies) versus temptees (the borrowers). IMHO, the best lines are:
...those opposing bankruptcy tried to have it both ways: "people going into bankruptcy are desperate, not deadbeats" and "it's the credit card company's fault anyway for lending them too much money".Finally, in How Much Bankruptcy Fraud Is There, she provides a pointer to a summary of a study that examines the likely frequency of fraudulent filings (the study estimates that the number is significantly more than the oft-cited 10% number).
But these cannot both be true. If people really needed the money, to put food on the table or shoes on the kids, then it's hard to argue that they would have been somehow better off without the credit cards. And if they spent the money on things they didn't need, well then surely most of the responsibility has to lie on their shoulders?Mark Kleiman gets around this problem by arguing that you've got two villains here--the tempters and the tempted--and it's unfair to punish only the tempted. Fair enough, except that I don't exactly understand how requiring people to fulfil contracts they've undertaken is "punishment".
...The other problem with saying we shouldn't punish the temptee unless we also punish the tempter is, of course, that none of the people making this argument have any interest in punishing the temptee.