American Economic Review: Vol. 103 No. 7 (December 2013)


Quick Tools:

Print Article Summary
Export Citation
Sign up for Email Alerts Follow us on Twitter


AER - All Issues

AER Forthcoming Articles

Debt Contracts with Partial Commitment

Article Citation

Kovrijnykh, Natalia. 2013. "Debt Contracts with Partial Commitment." American Economic Review, 103(7): 2848-74.

DOI: 10.1257/aer.103.7.2848


This paper analyzes a dynamic lending relationship where the borrower cannot be forced to make repayments, and the lender offers long-term contracts that are imperfectly enforced and repeatedly renegotiated. No commitment and full commitment by the lender are special cases of this model where the probability of enforcement equals zero and one, respectively. I show that an increase in the degree of enforcement can lower social welfare. Furthermore, properties of equilibrium investment dynamics with partial commitment drastically differ from those with full and no commitment. In particular, investment is positively related to cash flow, consistent with empirical findings.

Article Full-Text Access

Full-text Article

Additional Materials

Online Appendix (176.20 KB) | Download Data Set (32.27 KB) | Author Disclosure Statement(s) (14.24 KB)


Kovrijnykh, Natalia (AZ State U)

JEL Classifications

D82: Asymmetric and Private Information; Mechanism Design
D86: Economics of Contract: Theory
G21: Banks; Depository Institutions; Micro Finance Institutions; Mortgages

American Economic Review

Quick Tools:

Sign up for Email Alerts

Follow us on Twitter

Subscription Information
(Institutional Administrator Access)


AER - All Issues

AER - Forthcoming Articles

Virtual Field Journals

AEA Member Login:

AEAweb | AEA Journals | Contact Us