The power to enforce rights and obligations in a society is essential. For simplicity, economists have focused on two extreme forms of enforcement: perfect ex-post enforcement of contracts by an exogenous un-modeled authority (a ``court'') or contracts that are ``self-enforcing.'' Models that...

This paper conducts a theoretical and quantitative analysis of how entrepreneurs choose firm size, capital structure, default, and owner consumption to manage firm risk, including how these choices change with risk aversion. We decompose an entrepreneur’s default decision into three elements:...