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Exclusive contracts and the institution of bankruptcy

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  • Alberto Bisin
  • Adriano Rampini

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

Suggested Citation

  • Alberto Bisin & Adriano Rampini, 2006. "Exclusive contracts and the institution of bankruptcy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 27(2), pages 277-304, January.
    • Handle: RePEc:spr:joecth:v:27:y:2006:i:2:p:277-304
    DOI: 10.1007/s00199-005-0604-y
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    Keywords

    Bankruptcy; Non-exclusive contracts.;

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