985数量经济与金融系列讲座第88期：Borrowing Constraint as an Optimal Contract

题目: Borrowing Constraint as an Optimal Contract

主讲: Yuzhe ZHANG

University of Iowa

时间：2009年1月12日（周一）下午4:00—5:30

地点：经济学院614会议室

Abstract: We study an optimal contracting problem with one-sided commitment. We show that the optimal allocation in this problem is equivalent to an otherwise complete-markets allocation but for a borrowing constraint. Under full commitment, the optimal allocation of the contracting problem would be equivalent to the standard complete-markets allocation. In our model, therefore, we can pinpoint the role of the borrowing constraint as an optimal way to mitigate the limited commitment friction (i.e., the risk of default). Our model, thus, formalizes the natural but hitherto imprecise intuition that relates borrowing constraints to the risk of default.

We characterize the dynamics of the optimal allocation and the optimal borrowing constraint in our model. In several cases, we provide closed-form solutions.