Banking Investigate

A Noncooperative Approach To Bankruptcy Problems With An Endogenous Estate

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Executive Summary

The authors introduce a new class of bankruptcy problems in which the value of the estate is endogenous and depends on agents' investment decisions. There are two investment alternatives: investing in a company and becoming a shareholder (risky asset) and depositing money into a savings account (risk-free asset). Bankruptcy is a possible event only for the risky asset. They define a game between agents each of which aims to maximize his expected payoff by choosing an investment alternative and a company management which aims to maximize profits by choosing a bankruptcy rule.

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