Optimal Personal Bankruptcy Design under Moral Hazard
AbstractIn this paper, we develop a normative theory of unsecured consumer credit and personal bankruptcy based on the optimal trade-off between incentives and insurance. First, in order to characterize this trade-off, we solve a dynamic moral hazard problem in which agents' private effort decisions influence the life-cycle profiles of their earnings. We then show how the optimal allocation of individual effort and consumption can be implemented in a market equilibrium in which (i) agents and intermediaries repeatedly trade in secured and unsecured debt instruments, and (ii) agents obtain (restricted) discharge of their unsecured debts in bankruptcy. The structure of this equilibrium and the associated restrictions on debt discharge closely match the main qualitative features of personal credit markets and bankruptcy law that actually exist in the United States. (Copyright: Elsevier)
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.
Bibliographic InfoArticle provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.
Volume (Year): 13 (2010)
Issue (Month): 2 (April)
Contact details of provider:
Postal: Review of Economic Dynamics Academic Press Editorial Office 525 "B" Street, Suite 1900 San Diego, CA 92101
Web page: http://www.EconomicDynamics.org/review.htm
More information through EDIRC
Find related papers by JEL classification:
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- K35 - Law and Economics - - Other Substantive Areas of Law - - - Personal Bankruptcy Law
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Stefania Albanesi & Christopher Sleet, 2006.
"Dynamic Optimal Taxation with Private Information,"
Review of Economic Studies,
Oxford University Press, vol. 73(1), pages 1-30.
- Stefania Albanesi & Christopher Sleet, 2004. "Dynamic optimal taxation with private information," Discussion Paper / Institute for Empirical Macroeconomics 140, Federal Reserve Bank of Minneapolis.
- Albanesi, Stefania & Sleet, Christopher, 2003. "Dynamic Optimal Taxation with Private Information," CEPR Discussion Papers 4006, C.E.P.R. Discussion Papers.
- Timothy J. Kehoe & David K. Levine, 2006.
"Bankruptcy and Collateral in Debt Constrained Markets,"
NBER Working Papers
12656, National Bureau of Economic Research, Inc.
- Timothy J. Kehoe & David K. Levine, 2006. "Bankruptcy and collateral in debt constrained markets," Staff Report 380, Federal Reserve Bank of Minneapolis.
- Leonardo Martinez & Juan Carlos Hatchondo & Juan M. Sanchez, 2012.
IMF Working Papers
12/26, International Monetary Fund.
- Borghan Nezami Narajabad, 2012.
"Information Technology and the Rise of Household Bankruptcy,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 15(4), pages 526-550, October.
- Borghan Nezami Narajabad, 2012. "Code and data files for "Information Technology and the Rise of Household Bankruptcy"," Computer Codes 10-43, Review of Economic Dynamics.
- Borys Grochulski, 2010.
"On the optimality of Ramsey taxes in Mirless economies,"
10-14, Federal Reserve Bank of Richmond.
- Borys Grochulski, 2011. "On the optimality of Ramsey taxes in Mirrlees economies," 2011 Meeting Papers 883, Society for Economic Dynamics.
- Kartik B. Athreya & Xuan S. Tam & Eric R. Young, 2012. "Debt default and the insurance of labor income risks," Economic Quarterly, Federal Reserve Bank of Richmond, issue 4Q, pages 255-307.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann).
If references are entirely missing, you can add them using this form.