Bad Luck and Fixed Costs in Personal Bankruptcies

Peter Simmons

Economic Journal, 1989, vol. 99, issue 394, 92-107

Abstract: This paper applies a model of industrial equilibrium to determine the effects of demand and cost variables on the bankruptcy rate of unincorporated businesses in four industries when there are stochastic cost and demand shocks. The results suggest that different processes are relevant for firms whose fixed costs are associated with fixed capital assets and with working capital. In contrast to earlier work on the corporate sector, real and nominal interest rates have either small, or unexpected, effects. Copyright 1989 by Royal Economic Society.

Date: 1989
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