Stabsseminar ved Michel A. Robe

Assistant Professor of Finance, Michel A. Robe ved Kogod School of Business, holder stabsseminar ved Institutt for foretaksøkonomi på mandag.

Tema er How Costly Are Limited Liability Rules?

Tid og sted:
Mandag 22. november kl. 1215 - 1330 i Karl Borchs Auditorium

Abstract
We quantify the cost of limited liability rules in a traditional model of investment financing under moral hazard and risk aversion. Under limited liability, we show that external debt and the granting of absolute priority to debtholders are key (but not the unique) ingredients of the optimal financing package. Removing lia-bility limits
makes possible a superior contract that punishes the entrepreneur harshly for bad performance. We interpret these harsh penalties in terms of debtors' prisons, and quantify the deadweight losses brought about by the judi-cial imposition of liability limits. For reasonable parametrizations, the losses are significant. Our results indicate that the costs associated with unlimited liability and debtors' prisons must be substantial to explain the ubiquity of limited liability rules in modern economies.

Paper kan hentes hos Turid Gabrielsen på rom C512,
(284) eller på epost.