Exclusive Contracts and the Institution of Bankruptcy

34 Pages Posted: 6 Mar 2006  

Adriano A. Rampini

Duke University; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Alberto Bisin

New York University (NYU) - Department of Economics; New York University (NYU) - Center for Experimental Social Science (CESS); National Bureau of Economic Research (NBER)

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Abstract

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

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

Adriano A. Rampini (Contact Author)

Duke University ( email )

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HOME PAGE: http://faculty.fuqua.duke.edu/~rampini/

National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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Alberto Bisin

New York University (NYU) - Department of Economics

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New York, NY 10012
United States

New York University (NYU) - Center for Experimental Social Science (CESS) ( email )

One Washington Place
New York, NY 10003
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National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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