Consumer bankruptcy provides partial insurance against bad luck, but, by driving up interest rates, makes life-cycle smoothing more difficult. We argue that to assess this trade-off one needs a quantitative model of consumer bankruptcy with three key features: life-cycle component, idiosyncratic earnings uncertainty, and expense uncertainty (exogenous negative shocks to household balance sheets). We find that transitory and persistent earnings shocks have very different implications for evaluating bankruptcy rules. More persistent shocks make the bankruptcy option more desirable. Larger transitory shocks have the opposite effect. Our findings suggest the current US bankruptcy system may be desirable for reasonable parameter values.

How might policies that promote marriage and/or dissuade divorce help in the fight against HIV/AIDS? This question is addressed employing a choice-theoretic general equilibrium search model, using Malawi as a case study. In the framework developed, individuals can choose between married and single life. A single person can select among abstinence and sex with or without a condom. The results suggest that marriage-friendly policies can help to abate HIV/AIDS. The policy predictions that obtain from general equilibrium analysis are compared with those that arise from simulated synthetic field experiments and epidemiological studies.