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Exclusive contracts and the institution of bankruptcy

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Author Info
Alberto Bisin ()
Adriano Rampini ()

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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. Copyright Springer-Verlag Berlin/Heidelberg 2006

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File URL: http://hdl.handle.net/10.1007/s00199-005-0604-y
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Publisher Info
Article provided by Springer in its journal Economic Theory.

Volume (Year): 27 (2006)
Issue (Month): 2 (January)
Pages: 277-304
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Handle: RePEc:spr:joecth:v:27:y:2006:i:2:p:277-304

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Related research
Keywords: Bankruptcy; Non-exclusive contracts.;

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Cited by:
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  1. Yaron Leitner, 2005. "A theory of an intermediary with nonexclusive contracting," Working Papers 05-12, Federal Reserve Bank of Philadelphia. [Downloadable!]
  2. Daniela Fabbri, 2001. "The Legal Enforcement of Credit Contracts and the Level of Investment," CSEF Working Papers 57, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
  3. Piero Gottardi & Alberto Bisin & Adriano Rampini, 2007. "Managerial Hedging and Portfolio Monitoring," Working Papers 2007_24, University of Venice "Ca' Foscari", Department of Economics. [Downloadable!]
    Other versions:
  4. Ricardo Caballero & Arvind Krishnamurthy, 2001. "Smoothing Sudden Stops," NBER Working Papers 8427, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Yaron Leitner, 2009. "Inducing agents to report hidden trades: a theory of an intermediary," Working Papers 09-10, Federal Reserve Bank of Philadelphia. [Downloadable!]
  6. Kenneth Ayotte & Patrick Bolton, 2007. "Optimal Property Rights in Financial Contracting," NBER Working Papers 13316, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Yaron Leitner, 2004. "Non-Exclusive Contracts, Collateralized Trade, and a Theory of an Exchange," Econometric Society 2004 North American Winter Meetings 397, Econometric Society. [Downloadable!]
  8. Olivier Jeanne, 2004. "Debt Maturity and the International Financial Architecture," IMF Working Papers 04/137, International Monetary Fund. [Downloadable!]
  9. Borys Grochulski, 2008. "Optimal personal bankruptcy design : A Mirrlees approach," Working Paper 08-05, Federal Reserve Bank of Richmond. [Downloadable!]
  10. Arpad Abraham & Nicola Pavoni, 2008. "Efficient Allocations with Moral Hazard and Hidden Borrowing and Lending: A Recursive Formulation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 781-803, October. [Downloadable!] (restricted)
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  11. Emmanuel Farhi & Mikhail Golosov & Aleh Tsyvinski, 2007. "A Theory of Liquidity and Regulation of Financial Intermediation," NBER Working Papers 12959, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  12. Yaron Leitner, 2004. "Liquidity and exchanges, or contracting with the producers," Business Review, Federal Reserve Bank of Philadelphia, issue Q1, pages 16-22. [Downloadable!]
  13. Heski Bar-Isaac & Vicente Cuñat, 2005. "Long term debt with Hidden Borrowing," Working Papers 05-04, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
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  14. Patrick Bolton & Olivier Jeanne, 2005. "Structuring and Restructuring Sovereign Debt: The Role of Seniority," NBER Working Papers 11071, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  15. Ernst-Ludwig VON THADDEN & Erik BERGLÖF & Gérard ROLAND, 2003. "Optimal Debt Design and the Role of Bankruptcy," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 03.13, Université de Lausanne, Faculté des HEC, DEEP. [Downloadable!]
  16. Yaron Leitner, 2003. "Non-exclusive contracts, collateralized trade, and a theory of an exchange," Working Papers 03-3, Federal Reserve Bank of Philadelphia. [Downloadable!]
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