Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/53806 
Year of Publication: 
2008
Series/Report no.: 
Bank of Canada Working Paper No. 2008-5
Publisher: 
Bank of Canada, Ottawa
Abstract: 
In this paper we develop a quantitative model of entrepreneurial activity (risk-taking) and consumer bankruptcy choices and use the model to study the effects of bankruptcy regulations on entrepreneurial activity, bankruptcy rate and welfare. We show that eliminating bankruptcy exemptions leads to a modest increase in the fraction of entrepreneurs, a large decrease in the overall bankruptcy rate and a significant welfare gain. In contrast, eliminating the whole consumer bankruptcy system leads to a large fall in the fraction of entrepreneurs and a substantial welfare loss. These two findings suggest that the consumer bankruptcy system is desirable but it must be well-designed with regard to bankruptcy asset exemptions. In particular, excessive bankruptcy exemptions can be counter-productive. Finally, we argue that entrepreneurial activity is important when studying different bankruptcy rules or regulations.
Subjects: 
Economic models
Financial stability
Financial system regulation and policies
JEL: 
D31
E21
J23
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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