Exclusive Contracts and the Institution of Bankruptcy

34 Pages Posted: 6 Mar 2006

See all articles by Adriano A. Rampini

Adriano A. Rampini

Duke University; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Alberto Bisin

New York University (NYU) - Department of Economics; New York University (NYU) - Center for Experimental Social Science (CESS); National Bureau of Economic Research (NBER)

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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.

Keywords: Bankruptcy, Non-exclusive contracts

JEL Classification: D82, G33, K29

Suggested Citation

Rampini, Adriano A. and Bisin, Alberto, Exclusive Contracts and the Institution of Bankruptcy. Economic Theory, Vol. 27, pp. 277-304, 2006, Available at SSRN: https://ssrn.com/abstract=886733

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National Bureau of Economic Research (NBER) ( email )

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Alberto Bisin

New York University (NYU) - Department of Economics

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New York University (NYU) - Center for Experimental Social Science (CESS) ( email )

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National Bureau of Economic Research (NBER) ( email )

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