Exclusive Contracts and the Institution of Bankruptcy
Adriano A. Rampini
Duke University; NBER; CEPR
New York University (NYU) - Department of Economics; New York University (NYU) - Center for Experimental Social Science (CESS); National Bureau of Economic Research (NBER)
Economic Theory, Vol. 27, pp. 277-304, 2006
The paper studies the institution of bankruptcy when exclusive contracts cannot be enforced ex ante, e.g., a bank cannot monitor whether the borrower enters into contracts with other creditors. The institution of bankruptcy enables the bank to enforce its claim to any funds that the borrower has above a fixed bankruptcy protection level. Bankruptcy improves on non-exclusive contractual relationships but is not a perfect substitute for exclusivity ex ante. We characterize the effect of bankruptcy provisions on the equilibrium contracts which borrowers use to raise financing.
Number of Pages in PDF File: 34
Keywords: Bankruptcy, Non-exclusive contracts
JEL Classification: D82, G33, K29
Date posted: March 6, 2006
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