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Personal bankruptcy law, debt portfolios, and entrepreneurship

Author

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  • Mankart, Jochen
  • Rodano, Giacomo

Abstract

Bankruptcy provides entrepreneurs with insurance against the financial consequences of failure at the cost of worsened credit conditions. Using a quantitative general equilibrium model of entrepreneurship, we show that the presence of secured credit in addition to unsecured credit substantially alters this trade-off. If secured credit is not available the optimal bankruptcy law is harsh since the negative effect dominates. If secured credit is available the optimal law is lenient since entrepreneurs rationed out of the unsecured credit market can still obtain secured credit, lowering the costs of worse credit conditions. We find significant welfare gains from reforming the law.

Suggested Citation

  • Mankart, Jochen & Rodano, Giacomo, 2015. "Personal bankruptcy law, debt portfolios, and entrepreneurship," Journal of Monetary Economics, Elsevier, vol. 76(C), pages 157-172.
  • Handle: RePEc:eee:moneco:v:76:y:2015:i:c:p:157-172
    DOI: 10.1016/j.jmoneco.2015.09.001
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    Cited by:

    1. Frank M. Fossen & Johannes König, 2016. "Personal Bankruptcy Law and Entrepreneurship," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(4), pages 28-34, 02.
    2. Igor Livshits, 2015. "Recent Developments In Consumer Credit And Default Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 29(4), pages 594-613, September.
    3. Sumudu Kankanamge & Alexandre Gaillard, 2019. "Entrepreneurship, Inter-Generational Business Transmission and Aging," 2019 Meeting Papers 1503, Society for Economic Dynamics.
    4. repec:ces:ifodic:v:13:y:2016:i:4:p:19191583 is not listed on IDEAS
    5. Frank M.Fossen & JohannesKönig, 2016. "Personal Bankruptcy Law and Entrepreneurship," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(04), pages 28-34, February.
    6. Gaillard, Alexandre & Kankanamge, Sumudu, 2018. "Entrepreneurship, Labor Market Mobility and the Role of Entrepreneurial Insurance," TSE Working Papers 18-929, Toulouse School of Economics (TSE), revised Feb 2019.
    7. Tuğberk Kaya & Burak Erkut & Nadine Thierbach, 2019. "Entrepreneurial Intentions of Business and Economics Students in Germany and Cyprus: A Cross-Cultural Comparison," Sustainability, MDPI, Open Access Journal, vol. 11(5), pages 1-18, March.
    8. Hülya Eraslan & Gizem Koşar & Wenli Li & Pierre‐Daniel Sarte, 2017. "An Anatomy Of U.S. Personal Bankruptcy Under Chapter 13," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 58, pages 671-702, August.
    9. Kankanamge, Sumudu & Gaillard, Alexandre, 2020. "Buying and Selling Entrepreneurial Assets," TSE Working Papers 20-1078, Toulouse School of Economics (TSE).

    More about this item

    Keywords

    Debt portfolio; Personal bankruptcy; Entrepreneurship; Occupational choice;

    JEL classification:

    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • K10 - Law and Economics - - Basic Areas of Law - - - General (Constitutional Law)
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)

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