Default risk is a big concern for lenders, so they ask borrowers to provide collateral. Collateral helps prevent borrowers from defaulting on purpose and allows lenders to sell the collateral if the borrower defaults. A model in the article shows that when there's no commitment to future actions, collateral is needed to stop strategic default. Lenders might also be tempted to keep the collateral, so the best contract must make sure both borrower and lender have reasons to follow the agreement. This means that when collateral is involved, there are limits on how things can be shared out. The article compares this to a world where everyone keeps their promises.