On November 21, the UW Department of Economics hosted its quarterly Paul Heyne Seminar in honor of Paul T. Heyne, a devoted educator who championed undergraduate learning. This seminar featured Dr. Ali Karimirad, who presented his research on how limited liability in trade credit transactions can affect market efficiency in multi-sector input-output economies. As Dr. Karimirad explains, “When firms can default on their trade credit obligations due to limited liability, it creates a moral hazard problem where firms over-order intermediate inputs and demand excessive credit. While suppliers respond by charging higher prices to include risk premiums, the paper demonstrates that this market response is insufficient to fully counteract the distortion. Through two key channels—over-ordering of inputs and deadweight loss from defaults—limited liability leads to resource misallocation and reduced total factor productivity.”
The Paul Heyne Seminar is open to all students, alumni, faculty, and staff. Please message eub@uw.edu.