Bankruptcy Procedures with Ex Post Moral Hazard

Karel Janda

No 61, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: The optimal design of credit contracts and bankruptcy procedures is an important policy question both in developed market economies and in countries with emerging markets. In this paper I deal with several theoretical considerations related to these important policy problems. My main concern is with the impact of relaxation of bankruptcy procedures providing for a possibility of a renegotiation of the debt instead of strictly imposing bankruptcy whenever the debtor falls into a default on his debt. I deal with this problem in a context of collateralized debt contracts in the conditions of imperfect information about the prospects of the entrepreneur and about the results of his project.

Keywords: bankruptcy; moral hazard; adverse selection; soft budget constraint (search for similar items in EconPapers)
Pages: 18 pages
Date: 2004, Revised 2004
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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