Exclusive contracts and the institution of bankruptcy

Alberto Bisin and Adriano Rampini

Economic Theory, 2006, vol. 27, issue 2, 277-304

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

Keywords: Bankruptcy; Non-exclusive contracts. (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (37)

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DOI: 10.1007/s00199-005-0604-y

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