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Bancruptcy in a model of unsecured claims

Author

Listed:
  • Mário R. Páscoa

    (Faculdade de Economia, Universidade Nova de Lisboa, 1099-032 Lisboa, PORTUGAL)

  • Aloisio P. Araujo

    (IMPA and EPGE/FGV (Rio de Janeiro, Estrada Dona Castorina, 110,22460-320 Rio de Janeiro, BRASIL)

Abstract

We study a two periods model of incomplete markets with nominal assets unsecured by collateral, where agents can go bankrupt but there are no bankruptcy penalties entering directly in the utility function. We address two cases: first, a proportional reimbursement rule under bounded short sales and limited liability and, secondly, a nonproportional reimbursement rule, favoring smaller claims, without bounds on short-sales, but assuming that liability approaches total garnishment as debt goes to infinity.

Suggested Citation

  • Mário R. Páscoa & Aloisio P. Araujo, 2002. "Bancruptcy in a model of unsecured claims," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 20(3), pages 455-481.
    • Handle: RePEc:spr:joecth:v:20:y:2002:i:3:p:455-481
    Note: Received: September 10, 1998; revised version: August 6, 2001
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    Citations

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    Cited by:

    1. Emin Karagözoğlu, 2014. "A noncooperative approach to bankruptcy problems with an endogenous estate," Annals of Operations Research, Springer, vol. 217(1), pages 299-318, June.
    2. Xavier Mateos-Planas & Giulio Seccia, 2013. "Consumer Default with Complete Markets: Default-based Pricing and Finite Punishment," Working Papers 711, Queen Mary University of London, School of Economics and Finance.
    3. Jürgen Eichberger & Klaus Rheinberger & Martin Summer, 2014. "Credit risk in general equilibrium," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 57(2), pages 407-435, October.
    4. Miguel A. Iraola & Juan Pablo Torres-Martínez, 2012. "Liquidity Contractions and Prepayment Risk on Collateralized Asset Markets," Working Papers wp364, University of Chile, Department of Economics.
    5. repec:onb:oenbwp:y::i:172:b:1 is not listed on IDEAS
    6. Weiye Cheny, 2018. "Credit and Bankruptcy in a Temporary Equilibrium Model," Discussion Papers in Economics and Business 18-23, Osaka University, Graduate School of Economics.
    7. Nicolas Houy & Frédéric Jouneau & François Le Grand, 2020. "Defaulting firms and systemic risks in financial networks: a normative approach," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 70(2), pages 503-526, September.
    8. Jaime Luque, 2014. "Wages, local amenities and the rise of the multi-skilled city," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 52(2), pages 457-467, March.
    9. Ritzberger, Klaus & Tsomocos, Dimitrios P., 2024. "On bankruptcy in general equilibrium with uncertainty," Journal of Economic Theory, Elsevier, vol. 218(C).
    10. Li Gan & Tarun Sabarwal, 2005. "A Simple Test of Adverse Events and Strategic Timing Theories of Consumer Bankruptcy," NBER Working Papers 11763, National Bureau of Economic Research, Inc.
    11. M. Udara Peiris & Dimitrios P. Tsomocos, 2019. "International monetary equilibrium with default," Chapters, in: Financial Regulation and Stability, chapter 10, pages 259-269, Edward Elgar Publishing.
    12. Adriano Campos Menezes & Jaime Orrillo, 2018. "Concerning The Seizure Of Collateral In Collateralized Loan Markets," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 13(03), pages 1-9, September.
    13. Li Gan & Tarun Sabarwal & Shuoxun Zhang, 2010. "Personal Bankruptcy: Reconciling Adverse Events and Strategic Timing Hypotheses Using Heterogeneity in Filing Types," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201008, University of Kansas, Department of Economics, revised May 2011.
    14. Xavier Mateos-Planas & Giulio Seccia, 2013. "Consumer Default with Complete Markets: Default-based Pricing and Finite Punishment," Working Papers 711, Queen Mary University of London, School of Economics and Finance.
    15. Geng, Runjie & Kubler, Felix, 2023. "Stochastic overlapping generations with non-convex budget sets," Journal of Mathematical Economics, Elsevier, vol. 107(C).
    16. Iraola, Miguel A. & Torres-Martínez, Juan Pablo, 2014. "Equilibrium in collateralized asset markets: Credit contractions and negative equity loans," Journal of Mathematical Economics, Elsevier, vol. 55(C), pages 113-122.
    17. Boonen, Tim J., 2019. "Equilibrium recoveries in insurance markets with limited liability," Journal of Mathematical Economics, Elsevier, vol. 85(C), pages 38-45.
    18. Xavier Mateos-Planas & Giulio Seccia, 2014. "Consumer default with complete markets: default-based pricing and finite punishment," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 56(3), pages 549-583, August.
    19. Miguel A. Iraola & Juan Pablo Torres-Martinez, 2013. "Liquidity Contractions, Incomplete Financial Participation and the Prevalence of Negative Equity Non-Recourse Loans," Working Papers 2013-08, University of Miami, Department of Economics.

    More about this item

    Keywords

    Bankruptcy; Incomplete markets; Limited liability; Spread.;
    All these keywords.

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets

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