A General Equilibrium Analysis of Personal Bankruptcy Law

28 Pages Posted: 18 Jan 2016

See all articles by Ulf von Lilienfeld‐Toal

Ulf von Lilienfeld‐Toal

Universite du Luxembourg

Dilip Mookherjee

Boston University - Department of Economics

Date Written: January 2016

Abstract

We analyse an economy where principals and agents match and contract subject to moral hazard. Bankruptcy law defines the limited liability constraint in these contracts. We analyse Walrasian allocations to generate the following predictions: (i) weakening bankruptcy law causes redistribution of debt and welfare from poor agents and principals to rich agents; (ii) exemption limits Pareto‐dominate other bankruptcy laws if project size is fixed; (iii) means‐testing (as in recent US personal bankruptcy law) that is ex post pro‐poor in intent makes the poor worse off ex ante.

Suggested Citation

von Lilienfeld‐Toal, Ulf and Mookherjee, Dilip, A General Equilibrium Analysis of Personal Bankruptcy Law (January 2016). Economica, Vol. 83, Issue 329, pp. 31-58, 2016. Available at SSRN: https://ssrn.com/abstract=2716509 or http://dx.doi.org/10.1111/ecca.12167

Ulf Von Lilienfeld‐Toal (Contact Author)

Universite du Luxembourg

L-1511 Luxembourg
Luxembourg

Dilip Mookherjee

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States
617-353-4392 (Phone)
617-353-4143 (Fax)

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