Designing a Search Mechanism for Debt Collection

Debt Collection firms require an efficient and accurate procedure for locating a delinquent debtor, filing a lawsuit, and collecting on a debt at minimal cost. This process is known as "skip-tracing," with a "skip" being a delinquent debtor actively attempting to escape a debt. In this paper, we study the skip-tracing procedure for a large firm specializing in debt collection. This firm currently contracts an address search service to research and compile a list of possible addresses for each debtor and recommend one address as the most probable. We use a simple maximum likelihood estimation procedure for assessing the "false positive" and "false negative" probabilities. Having determined the accuracy of the address search service, we study the optimal decision for the firm taking into account the costs and probabilities of all the available alternatives for "skip-tracing". Our preliminary findings suggest that at high confidence levels, the firm stands to benefit monetarily by forgoing one of the most costly steps in the verification process