Personal Bankruptcy Can Be Economically Justified Even in a Non-stochastic Environment

Harashima, Taiji (2026): Personal Bankruptcy Can Be Economically Justified Even in a Non-stochastic Environment.

Abstract

Personal bankruptcy is usually justified in theory on the grounds that households always face substantial risks, which conversely implies that if there is no risk, personal bankruptcy is only socially harmful. However, even in a non-stochastic environment, households can persistently owe large debts because of heterogeneities in their preferences and abilities. Moreover, the usually implemented means of public assistance cannot necessarily prevent households from persistently owing large debts because of these heterogeneities. In this paper, I show that personal bankruptcy can prevent households from persistently owing large debts resulting from their heterogeneities, and that personal bankruptcy can therefore be justified even in a non-stochastic environment.

• Item Type: MPRA Paper
• Language: English
• Keywords: Personal bankruptcy; Bankruptcy discharge; Sustainable heterogeneity
• Subjects: D - Microeconomics > D6 - Welfare Economics > D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth

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