Bankruptcy Problems with Reference-Dependent Preferences

Andrea Gallice

No 38, Working papers from Department of Economics, Social Studies, Applied Mathematics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino

Abstract: We study bankruptcy problems under the assumption that claimants have reference-dependent preferences. We show that in such a context, standard allocative rules are no longer equivalent from the viewpoint of the level of welfare that they generate. A clear ranking of the most prominent rules actually emerges. Welfare thus becomes an additional dimension that an arbitrator may want to consider in deciding which allocation to implement. We then introduce a new rule that always maximizes welfare and discuss its pros and cons.

Keywords: Bankruptcy Problems; Claims; Reference-Dependent Preferences; Welfare. (search for similar items in EconPapers)
JEL-codes: D03 D63 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2016-07
New Economics Papers: this item is included in nep-mic and nep-upt
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http://www.bemservizi.unito.it/repec/tur/wpapnw/m38.pdf First version, 2016 (application/pdf)

Related works:
Journal Article: Bankruptcy problems with reference-dependent preferences (2019)
Working Paper: Bankruptcy Problems with Reference-Dependent Preferences (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:tur:wpapnw:038

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