Skip navigation
Skip navigation

Spousal guarantees

Scheelings, Richard

Description

Lenders often require of small investors that they sign a personal guarantee before forwarding funds, and if the borrowers own funds or assets are insfficient backing for a guarantee, then a third party may be asked to sign. Since strangers do not guarantee each others debts, it is in the nature of such guarantees that they straddle the private and business worlds within any relationship. Important relationship assets (such as the family home) are often at stake, and courts struggle with the...[Show more]

dc.contributor.authorScheelings, Richard
dc.date.accessioned2004-07-14
dc.date.accessioned2004-09-28T04:50:12Z
dc.date.accessioned2011-01-05T08:54:51Z
dc.date.available2004-09-28T04:50:12Z
dc.date.available2011-01-05T08:54:51Z
dc.date.created2004
dc.identifier.urihttp://hdl.handle.net/1885/42007
dc.identifier.urihttp://digitalcollections.anu.edu.au/handle/1885/42007
dc.description.abstractLenders often require of small investors that they sign a personal guarantee before forwarding funds, and if the borrowers own funds or assets are insfficient backing for a guarantee, then a third party may be asked to sign. Since strangers do not guarantee each others debts, it is in the nature of such guarantees that they straddle the private and business worlds within any relationship. Important relationship assets (such as the family home) are often at stake, and courts struggle with the policy tradeoffs inherent in such deeds or contracts between freedom of contract and a concern with the potential for coercion of the one signing. This paper explores the nature of the optimal third party guarantee within the incomplete contracting environment inaugurated by Grossman and Hart (1986). The optimal contract trades off the ex post amount of relationship asset to be foreclosed by a bank against the desirability of ensuring the ex ante release of funds to promote the exploitation of viable investment opportunities. The role of ex post bargaining power, as a proxy for coercion is examined and it is found that for certain parameter values in the model increased coercion, while freeing more funds ex ante, simultaneously lowers social welfare.
dc.format.extent445729 bytes
dc.format.extent350 bytes
dc.format.mimetypeapplication/pdf
dc.format.mimetypeapplication/octet-stream
dc.language.isoen_AU
dc.subjectpersonal bankruptcy
dc.subjectincomplete contracts
dc.subjectlaw and economics
dc.subjectfinancial contracting
dc.subjectdebt
dc.subjectsecured transactions
dc.titleSpousal guarantees
dc.typeWorking/Technical Paper
local.description.refereedno
local.identifier.citationmonthjun
local.identifier.citationyear2004
local.identifier.eprintid2669
local.rights.ispublishedyes
dc.date.issued2004
local.contributor.affiliationAustralian Centre of Regulatory Economics
local.contributor.affiliationANU
local.citationWorking Paper Series in Regulatory Economics No.5
CollectionsANU Research Publications

Download

File Description SizeFormat Image
04-05.pdf435.28 kBAdobe PDFThumbnail
2669-~UI.XSH350 BUnknown


Items in Open Research are protected by copyright, with all rights reserved, unless otherwise indicated.

Updated:  19 May 2020/ Responsible Officer:  University Librarian/ Page Contact:  Library Systems & Web Coordinator