Econometrica: Nov 1977, Volume 45, Issue 8
A Model of Borrowing and Lending with Bankruptcy
https://doi.org/0012-9682(197711)45:8<1879:AMOBAL>2.0.CO;2-H
p.
1879-1906
Martin F. Hellwig
The paper analyzes borrowing and lending on uncertain future income, with a positive probability of bankruptcy. Creditor and debtor play a strategic game, in which it is shown that optimal creditor behavior is not generally well defined. The model suggests that under uncertainty the availability of credit may be restricted below that which would be predicted by classical microeconomic theory.Log In To View Full Content