Regulating Exclusion from Financial Markets
AbstractWe study optimal enforcement in credit markets in which the only threat facing a defaulting borrower is restricted access to financial markets. We solve for the optimal level of exclusion, and link it to observed institutional arrangements. Regulation in this environment must accomplish two objectives. First, it must prevent borrowers from defaulting on one bank and transferring their resources to another bank. Second, and less obviously, it must give banks the incentive to make sizeable loans, and to honour their promises of future credit. We establish that the optimal regulation resembles observed laws governing default on debt. Moreover, if debtors have the right to a "fresh start" after bankruptcy then this must be balanced by enforceable provisions against fraudulent conveyance. Our optimal regulation is robust, in that it can be implemented in a way that does not require the regulator to have information about either the borrower or lender. Our results isolate the way in which specific institutions surrounding bankruptcy-namely rules governing asset garnishment and fraudulent conveyances-support loan markets in which borrowers have no collateral. Copyright 2004 The Review of Economic Studies Ltd.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Wiley Blackwell in its journal The Review of Economic Studies.
Volume (Year): 71 (2004)
Issue (Month): (07)
Contact details of provider:
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0034-6527
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Ronel Elul & Piero Gottardi, 2011.
"Bankruptcy: is it enough to forgive or must we also forget?,"
11-14, Federal Reserve Bank of Philadelphia.
- Ronel Elul & Piero Gottardi, 2008. "Bankruptcy: Is it enough to Forgive or must we also Forget?," CESifo Working Paper Series 2313, CESifo Group Munich.
- Ronel Elul & Piero Gottardi, 2007. "Bankruptcy: Is it enough to forgive or must we also forget?," Working Papers 07-10, Federal Reserve Bank of Philadelphia.
- Piero Gottardi & Ronel Elul, 2007. "Bankruptcy: Is It Enough to Forgive or Must we Also Forget?," Working Papers 2007_23, Department of Economics, University of Venice "Ca' Foscari".
- Ronel Elul & Piero Gottardi, 2008. "Bankruptcy: Is It Enough to Forgive or Must We Also Forget?," Economics Working Papers ECO2008/41, European University Institute.
- DE LA CROIX, David & MICHEL, Philippe, 2004.
"Education and growth with endogenous debt constraints,"
CORE Discussion Papers
2004074, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- David Croix & Philippe Michel, 2007. "Education and growth with endogenous debt constraints," Economic Theory, Springer, vol. 33(3), pages 509-530, December.
- David, DE LA CROIX, 2004. "Education and Growth with Endogenous Debt Constraints," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2004020, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
- DE LA CROIX, David & MICHEL, Philippe, . "Education and growth with endogenous debt constraints," CORE Discussion Papers RP -1991, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Thomas Philippon & Vasiliki Skreta, 2011.
"Optimal Interventions in Markets with Adverse Selection,"
11-11, New York University, Leonard N. Stern School of Business, Department of Economics.
- Thomas Philippon & Vasiliki Skreta, 2012. "Optimal Interventions in Markets with Adverse Selection," American Economic Review, American Economic Association, vol. 102(1), pages 1-28, February.
- Philippon, Thomas & Skreta, Vasiliki, 2010. "Optimal Interventions in Markets with Adverse Selection," CEPR Discussion Papers 7737, C.E.P.R. Discussion Papers.
- Thomas Philippon & Vasiliki Skreta, 2010. "Optimal Interventions in Markets with Adverse Selection," NBER Working Papers 15785, National Bureau of Economic Research, Inc.
- Vasiliki Skreta & Thomas Philippon, 2010. "Optimal Interventions in Markets with Adverse Selection," 2010 Meeting Papers 1333, Society for Economic Dynamics.
- Mitxeo Grajirena, Jone & Mendizabal Zubeldia, Alaitz & Zubia Zubiaurre, Marian & Vidal Iturrioz, Joana, . "Banku-etikoa: finantza bazterketaren irtenbide posiblea," Revista de Dirección y Administración de Empresas, Universidad del País Vasco - Escuela Universitaria de Estudios Empresariales de San Sebastián.
- Brown, Martin & Serra-García, Marta, . "The Threat of Exclusion and Relational Contracting," Working Papers on Finance 1407, University of St. Gallen, School of Finance.
- Eric Van Tassel, 2009. "Moral Hazard and Capital Requirements in a Lending Model of Credit Denial," Working Papers 09003, Department of Economics, College of Business, Florida Atlantic University.
- Marco Realdon, 2007.
"Valuation of the Firm's Liabilities When Equity Holders Are Also Creditors,"
Journal of Business Finance & Accounting,
Wiley Blackwell, vol. 34(5-6), pages 950-975.
- Marco Realdon, 2006. "Valuation of the Firm's Liabilities when Equity Holders are also Creditors," Discussion Papers 06/16, Department of Economics, University of York.
- Langberg, Nisan, 2008. "Optimal financing for growth firms," Journal of Financial Intermediation, Elsevier, vol. 17(3), pages 379-406, July.
- Maria Sarigiannidou & Theodore Palivos, 2012. "A Modern Theory of Kuznets’ Hypothesis," Working Papers 201202, Texas Christian University, Department of Economics.
- Bond, Philip & Rai, Ashok S., 2009. "Borrower runs," Journal of Development Economics, Elsevier, vol. 88(2), pages 185-191, March.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.