34 Pages Posted: 6 Mar 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.
Keywords: Bankruptcy, Non-exclusive contracts
JEL Classification: D82, G33, K29
Suggested Citation: Suggested Citation
Rampini, Adriano A. and Bisin, Alberto, Exclusive Contracts and the Institution of Bankruptcy. Economic Theory, Vol. 27, pp. 277-304, 2006. Available at SSRN: https://ssrn.com/abstract=886733