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Title: Industry equilibrium with random exit or default
Authors: 江品慧
Chiang, Piin‐Hueih
Boyarchenko, Svetlana
Contributors: 經濟系
Keywords: endogenous default;endogenous exit;heterogeneous firms;industryequilibrium
Date: 2019-08
Issue Date: 2020-06-20 14:10:42 (UTC+8)
Abstract: An industry consisting of a large number of small price taking firms subject to idiosyncratic productivity shocks is considered. At the moment of entry, a firm takes on debt. We show that in a competitive equilibrium, some firms exit and pay out their debt while others choose to default. The outcome depends on the realization of firm‐specific shocks. The paper demonstrates that if the firms self‐select between exit with debt repayment and default, then the default region is disconnected from the exit region. The methodological contribution of the paper is the analytical characterization of the long‐run equilibrium for two scenarios of the initial distribution of productivity shocks. We consider two public policy mechanisms—contract enforcement and creditor protection. Our policy recommendation is that regulators need to reduce the contract enforcement if they want to decrease the long‐run default rate.
Relation: Journal of Public Economic Theory, Vol.21, No.4, pp.650-686
Data Type: article
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Appears in Collections:[經濟學系] 期刊論文

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