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Personal Bankruptcy Can Be Economically Justified Even in a Non-stochastic Environment

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  • Harashima, Taiji

Abstract

Personal bankruptcy is usually justified in theory on the grounds that households always face substantial risks, which conversely implies that if there is no risk, personal bankruptcy is only socially harmful. However, even in a non-stochastic environment, households can persistently owe large debts because of heterogeneities in their preferences and abilities. Moreover, the usually implemented means of public assistance cannot necessarily prevent households from persistently owing large debts because of these heterogeneities. In this paper, I show that personal bankruptcy can prevent households from persistently owing large debts resulting from their heterogeneities, and that personal bankruptcy can therefore be justified even in a non-stochastic environment.

Suggested Citation

  • Harashima, Taiji, 2026. "Personal Bankruptcy Can Be Economically Justified Even in a Non-stochastic Environment," MPRA Paper 125812, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:125812
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    References listed on IDEAS

    as
    1. Li, Wenli & Sarte, Pierre-Daniel, 2006. "U.S. consumer bankruptcy choice: The importance of general equilibrium effects," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 613-631, April.
    2. Igor Livshits & James MacGee & Michèle Tertilt, 2007. "Consumer Bankruptcy: A Fresh Start," American Economic Review, American Economic Association, vol. 97(1), pages 402-418, March.
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    4. Harashima, Taiji, 2023. "Numerical Simulations of How Economic Inequality Increases in Democratic Countries," MPRA Paper 118710, University Library of Munich, Germany.
    5. Pradeep Dubey & John Geanakoplos & Martin Shubik, 2005. "Default and Punishment in General Equilibrium," Econometrica, Econometric Society, vol. 73(1), pages 1-37, January.
    6. Harashima, Taiji, 2020. "An Alternative Rationale for the Necessity of an Inheritance Tax," MPRA Paper 100015, University Library of Munich, Germany.
    7. repec:srs:volume:v:5:y:2014:i:1:p:73-100 is not listed on IDEAS
    8. repec:srs:journl:tpref:v:5:y:2014:i:1:p:73-100 is not listed on IDEAS
    9. Harashima, Taiji, 2018. "Do Households Actually Generate Rational Expectations? “Invisible Hand” for Steady State," MPRA Paper 88822, University Library of Munich, Germany.
    10. Zame, William R, 1993. "Efficiency and the Role of Default When Security Markets Are Incomplete," American Economic Review, American Economic Association, vol. 83(5), pages 1142-1164, December.
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    12. Taiji HARASHIMA, 2014. "Sustainable Heterogeneity In Exogenous Growth Models. The Socially Optimal Distribution By Government’S Intervention," Theoretical and Practical Research in the Economic Fields, ASERS Publishing, vol. 5(1), pages 73-100.
    13. Harashima, Taiji, 2020. "Economic Inequality Exacerbated by Economic Rents from Exploitative Contracting," MPRA Paper 104178, University Library of Munich, Germany.
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    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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