A really good paper on bankruptcy reform

Every so often, you see a paper that just reaches out and grabs your attention by its sheer size and comprehensiveness. This is one of those papers.

"A Quantitative Theory of Unsecured Consumer Credit with Risk of Default" by Satyajit Chatterjee, Dean Corbae, Makoto Nakajima, and Jose-Victor Rios-Rull (Econometrica vol. 75 no. 6, Nov. 2007 pages 1525-1589.)

Non-gated version here. Homework assignment (!) based on the paper here.

I was Dean's TA for the graduate macro class at Iowa back in the day. I think he was already working on the seeds of this paper at that time (a dozen years ago or so). According to the note at the end of the paper, almost 5 years elapsed during the review process. This paper has a theoretical model with all of the requisite proofs befitting a lead article in Econometrica as well as a computer simulation of the calibrated model. They conduct a policy experiment similar to the recent change in bankruptcy laws. Their model predicts a significant increase in average consumption.

At first glance, the welfare gains they find are surprisingly large. I wonder how sensitive the welfare effects are to the parameters. This is a difficult question in any model with a complicated simulation (this I know from experience in my own papers), and their paper is already 65 pages long. So that question will probably need to be explored further in another paper. This paper will be of most interest to specialists who deal with quantitative macro models of heterogeneous agents. It's probably not destined for first year reading lists. But if you do any kind of work with these models or have an interest in the frontier of macro research on bankruptcy issues, then you should look at this impressive paper.