Default and aggregate income

• 成果类型: Article
• 署名作者: Rampini, AA
• 署名单位: Northwestern University
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2004.04.004
• 发表日期: 2005
• 页码: 225-253
• 关键词: default; asymmetric information; aggregate fluctuations; optimal contracts

摘要

This paper studies how default varies with aggregate income. We analyze a model in which optimal contracts enable risk sharing of privately observed, idiosyncratic income by allowing for default. Default provisions allow agents with low idiosyncratic income realizations to repay less and thus provide insurance. Default penalties ensure that only these agents default. We show that default can occur under the optimal contract and that default provisions vary with aggregate income. We provide conditions such that both the amount of default and default penalties vary countercyclically with aggregate income and show that the default rate can be discontinuous. (c) 2004 Elsevier Inc. All rights reserved.