Credit , Wages and Bankruptcy Laws ∗
نویسندگان
چکیده
We study bankruptcy in general equilibrium, taking into account the interactions between the credit and the labor markets, as well as wealth heterogeneity. Soft bankruptcy laws often preclude liquidation, to avoid ex-post inefficiencies. This worsens credit rationing, depresses investment and reduces aggregate leverage. Yet, tough laws do not necessarily maximize social welfare or emerge from the legislative process. Relatively rich agents can invest irrespective of the law. They favor soft laws which exclude poorer entrepreneurs from the market and thus reduce labor demand and wages. This raises the pledgeable income of the entrepreneurs who still can raise funds, and thus lowers their liquidation rates and the associated inefficiencies. Hence, a soft law can maximize social welfare.
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