Introducing the threat of violence isn't smoothly adjusting a variable in a formula. It's introducing a gating factor that's going to keep not-desperate people from dealing with you.
I'm happy to discuss with you offline (see my profile). The point I'm trying to make is that increasing the ability for greater enforcement mechanisms, should — on average — reduce the cost of loans. As I point out, there are real debates about where to draw the line about what is appropriate lender enforcement that I've personally struggled with.
I apologize that my example isn't perfect, and you're absolutely right, there is selection bias, unless there is little recourse for other products.
I apologize that my example isn't perfect, and you're absolutely right, there is selection bias, unless there is little recourse for other products.