A general equilibrium analysis of personal bankruptcy law

Date Issued
2016-01-01Publisher Version
10.1111/ecca.12167Author(s)
von Lilienfeld-Toal, Ulf
Mookherjee, Dilip
Metadata
Show full item recordPermanent Link
https://hdl.handle.net/2144/35579Version
Accepted manuscript
Citation (published version)
Ulf von Lilienfeld-Toal, Dilip Mookherjee. 2016. "A General Equilibrium Analysis of Personal Bankruptcy Law." ECONOMICA, Volume 83, Issue 329, pp. 31 - 58 (28). https://doi.org/10.1111/ecca.12167Abstract
We analyse an economy where principals and agents match and contract subject to moral hazard. Bankruptcy law defines the limited liability constraint in these contracts. We analyse Walrasian allocations to generate the following predictions: (i) weakening bankruptcy law causes redistribution of debt and welfare from poor agents and principals to rich agents; (ii) exemption limits Pareto‐dominate other bankruptcy laws if project size is fixed; (iii) means‐testing (as in recent US personal bankruptcy law) that is ex post pro‐poor in intent makes the poor worse off ex ante.
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