A Theory of Debt Based on the Inalienability of Human Capital

Oliver Hart and John Moore

No 3906, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Consider an entrepreneur who needs to raise funds from an investor, but cannot commit not to withdraw his human capital from the project. The possibility of a default or quit puts an upper bound on the total future indebtedness from the entrepreneur to the investor at any date. We characterize the optimal repayment path and show how it is affected both by the maturity structure of the project return stream and by the durability and specificity of project assets. Our results are consistent with the conventional wisdom about what determines the maturity structure of (long-term) debt contracts.

Date: 1991-11
Note: CF
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Citations: View citations in EconPapers (12)

Published as The Quarterly Journal of Economics, vol. 109, no. 4, pp. 841-879, (November 1994).

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Related works:
Journal Article: A Theory of Debt Based on the Inalienability of Human Capital (1994)
Working Paper: A Theory of Debt Based on the Inalienability of Human Capital (1991)
Working Paper: A Theory of Debt Based on the Inalienability of Human Capital (1991)
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