This paper analyzes the welfare effects of the recently revised Italian corporate law, that allows limited liability companies (so called societa` a responsabilita` limitata) to replace the fulfillment of strict capital requirements with the subscription of insurance contracts that make capital available in case of default. We find that such insurance contracts are not convenient for insurers. However, if a benevolent planner is willing to subsidize insurers’ expected losses, these contracts turn out to be welfare improving for a wide range of the relevant parameters. By calibrating the model with Italian data, we find that social welfare is maximized when the premium charged by the subsidized insurance companies is about 10% of total capital requirements; moreover, in this case the planner faces negligible expected losses.

Relaxing Liquidity Constraints for Start-Ups: A Welfare Analysis Over the Italian Revised Corporate Law

SPALLONE, Marco
2005-01-01

Abstract

This paper analyzes the welfare effects of the recently revised Italian corporate law, that allows limited liability companies (so called societa` a responsabilita` limitata) to replace the fulfillment of strict capital requirements with the subscription of insurance contracts that make capital available in case of default. We find that such insurance contracts are not convenient for insurers. However, if a benevolent planner is willing to subsidize insurers’ expected losses, these contracts turn out to be welfare improving for a wide range of the relevant parameters. By calibrating the model with Italian data, we find that social welfare is maximized when the premium charged by the subsidized insurance companies is about 10% of total capital requirements; moreover, in this case the planner faces negligible expected losses.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11564/138179
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