essays in public finance and industrial organization a dissertation ...

CHAPTER 1. BANKRUPTCY 20
or coverage over the course of the twentieth century. Moreover, historical evidence
shows that 1920 homestead exemption levels resulted from an idiosyncratic array
of nineteenth century historical circumstances. Describing the key factors driving
the establishment of homestead exemptions in the nineteenth century, ? cites no
less diverse a list than “Texas colonizers and western developers, labor and land
reformers, antimonopoly Jacksonian egalitarians, defenders of family security and
women’s property rights, southern planters and yeomen devastated by the Civil War.”
These heterogenous causes reduce the concern that historical homestead exemptions
merely proxy for a persistent state-level characteristic such as the strength of the
pro-debtor political movement.
Importantly, historical homestead exemptions are also a good predictor of con-
temporaneous exemptions values. 27 Figure 1.7 shows this graphically, plotting the
average level of seizable home equity for a constant, nationally representative sample
of households under 2005 homestead exemptions (y-axis) and inflation-adjusted 1920
homestead exemptions (x-axis) in each state. The plot also shows the fitted line from
a bivariate regression. As the slope coefficient indicates, homestead exemptions have
become less generous over time, with seizable assets increasing on average by 90 per-
cent. The R-squared value is 0.43, with the New England states in the lower right
corner being the most prominent outliers. 28
I take two further approaches to reduce the concern that unobservable factors
are driving the effect. The first is to sequentially add controls for Census Regions
(e.g., Northeast) and Census Divisions (e.g., New England) to the main specification.
Stable results across these specifications should address the concern that the effects
are being driven by a spatially-correlated, unobserved factor.
The second is to control for a rich set of state-level legislative covariates. In
the coverage equations, I control for insurance market regulations (e.g., community
rating requirements, coverage mandates) that may affect premiums. 29 While the
27Many of the changes since 1920 have simply been inflation updates passed by individual state
legislatures (?).
28A keyword search of newspaper articles in a six-month window around major changes in Massachusetts
and Connecticut assets exemptions failed to reveal any information on the reasons for
these increases.
29The data on these regulations was taken from a Blue Cross Blue Shield (2002) compilation