Debt contracts and cooperative improvements

Stefan Krasa; Tridib Sharma; Anne P. Villamil

doi:10.1016/j.jmateco.2004.04.002

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Debt contracts and cooperative improvements

Journal article

Peer reviewed

Debt contracts and cooperative improvements

Stefan Krasa, Tridib Sharma and Anne P. Villamil

Journal of mathematical economics, Vol.41(7), pp.857-874

11/01/2005

DOI: 10.1016/j.jmateco.2004.04.002

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Abstract

In this paper, we consider a dynamic game with imperfect information between a borrower and lender who must write a contract to produce a consumption good. In order to analyze the game, we introduce the concept of a coalitional perfect Bayesian Nash equilibrium (cPBNE). We prove that equilibria exist and are efficient in a precise sense, and that deterministic contracts that resemble debt are optimal for a general class of economies. The cPBNE solution concept captures both the non-cooperative aspect of firm liquidation and the cooperative aspect of renegotiation.

Bankruptcy

Cooperative and non-cooperative games

Debt contract

Efficiency

Enforcement

Fairness

Incomplete information

Liquidation

Renegotiation

Details

Title: Subtitle: Debt contracts and cooperative improvements
Creators: Stefan Krasa - University of Illinois Urbana-Champaign
Tridib Sharma - Instituto Tecnológico Autónomo de México
Anne P. Villamil - University of Illinois Urbana-Champaign
Resource Type: Journal article
Publication Details: Journal of mathematical economics, Vol.41(7), pp.857-874
Publisher: Elsevier B.V
DOI: 10.1016/j.jmateco.2004.04.002
ISSN: 0304-4068
eISSN: 1873-1538
Language: English
Date published: 11/01/2005
Academic Unit: Economics
Record Identifier: 9984380517202771

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