Exclusive Contracts and the Institution of Bankruptcy

Alberto Bisin, Adriano A. Rampini
2001 Social Science Research Network  
This 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
more » ... he effect of bankruptcy provisions on the equilibrium contracts which borrowers use to raise financing.
doi:10.2139/ssrn.250062 fatcat:6ytbio3dz5gvdbo7lyqwhmzam4