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

Taiji Harashima

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Personal bankruptcy; Bankruptcy discharge; Sustainable heterogeneity (search for similar items in EconPapers)
JEL-codes: D63 E21 (search for similar items in EconPapers)
Date: 2026-03-03
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