Default and bankruptcy in an entrepreneurial economy with incomplete markets
نویسندگان
چکیده
We build a general equilibrium model with incompl ete markets, production, default, and bankruptcy. The existence of equ ilibrium is proved. Theoretically, under app ropriate conditions, we show that the reduced-form entrepre neurial equ ilibrium and profit-maximization entrepreneurial equilibrium, as defined by Magill and Quinzii (1996), are equivalent. In addition, we find an inverse relationship between the economy real inter est rate and the probability of default. This result is empirically tested by applying the Cox proportional hazards model with time-dependent covariates for a sample of sole proprietorships’ unsecured credit operations in the Brazilian economy. The estimates confirm the findings from the
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