Production, bankruptcy, and financial policies under collateral constraints

We propose an extension of the incomplete markets general equilibrium model with production to situations in which firms can default (bankruptcy). In model, are owned by a single individual whose roles as entrepreneur and consumer anonymous. Assets exogenously collateralised seized together future output case default. Default is thus endogenous determines deliveries from assets issued. turn, receipts each asset purchased assumed depend on fraction firm’s output. This anonymous treated given individuals who will anticipate it, equilibrium, proportion aggregate output, generating counter-cyclical show that, this context, financial policies firm are, general, not irrelevant. establish existence equilibria discuss nature inefficiencies introduced presence bankruptcy.