Angry Borrowers: Negative Reciprocity in a Financial Market

Abstract

We examine the consequences of an intrusive debt-collection tactic that targets delinquent borrowers’ social circles. Our identification strategy relies on the fact that a fraction of delinquent loans are not worked on due to collection agents’ excessive workload. We show that this tactic backfires and increases the borrowers’ default rate by 5.9 to 14.3 percentage points. Male borrowers and borrowers with better credit respond more strongly. Moreover, the effect is concentrated in the period when this collection practice was emerging and likely unexpected. These findings are consistent with the negative reciprocity interpretation: angered borrowers retaliate by defaulting on their loans.