procedures is to be contained within reasonable limits. Reorganization is a realistic option only if management has sufficient …

specify default, renegotiation and reorganization policies. Renegotiation entails a redistribution of social surplus, while … reorganization takes the form of enhanced creditor monitoring. Firms with better contract histories are less likely to default, but … monitoring is too costly, renegotiation leads to reorganization, which resembles actual bankruptcy practice. We calibrate the …