Exclusive contracts and the institution of bankruptcy

Alberto Bisin, Adriano A. Rampini

    Research output: Contribution to journalArticle

    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.

    Original languageEnglish (US)
    Pages (from-to)277-304
    Number of pages28
    JournalEconomic Theory
    Volume27
    Issue number2
    DOIs
    StatePublished - Feb 2006

    Keywords

    • Bankruptcy
    • Non-exclusive contracts

    ASJC Scopus subject areas

    • Economics and Econometrics

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