Why do banks remain passive? In a model of bank-firm relationship we study the trade-off a bank faces when having defaulting firms declared bankrupt. First, the bank receives a payoff if a firm is liquidated. Second, it provides information about a firm's type to its competitors. Thereby,...

Limited liability may result in inefficient accident prevention, because a relevant portion of the expected harm is externalized on victims. This paper shows that under some restrictive conditions further limiting liability by means of a liability cap can improve caretaking.

We use the 1979 National Longitudinal Survey of Youth to revisit what is termed the credit card debt puzzle: why consumers simultaneously co-hold high-interest credit card debt and lowinterest assets that could be used to pay down this debt. This dataset contains unique information on...

This paper analyzes whether the financial distress of a firm affects the investment decisions of non-distressed competitors. On average, firms in distress impose indirect costs to non-distressed competitors by increasing costs of credit in the industry and hence restricting credit access and...