Working Paper

Credit rationing, bankruptcy cost, and the optimal debt contract for small business

Abstract: An examination of whether the costly random verification scheme affects the optimal debt contract for small business. It finds, contrary to Townsend (1979) and Williamson (1986, 1987), that the standard debt contract is the optimal debt contract with the costly random verification scheme.

Keywords: Discrimination in consumer credit; Bankruptcy; Debt; Small business;

Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers (Old Series)

Publication Date: 1997

Number: 9702