Fast Bargaining in Bankruptcy

David Benjamin ()

Discussion Paper Series In Economics And Econometrics from University of Southampton, Economics Division, School of Social Sciences

Abstract: I combine two previously separate strands of the bargaining literature to present a bargaining model with both one-sided private information and a majority vote for proposals to go into effect. I use this model to show that the US bankruptcy code produces shorter delays and higher welfare than the UK law. I consider the bargaining that occurs in bankruptcy between an informed firm and a set of uninformed creditors over a set of claims against the firm. The agents have an infinite horizon to bargain and cannot commit to a schedule of future offers. If individual creditors can be treated differently and a majority vote is required for the acceptance of new claims, adding creditors increases the probability of reaching agreement by the end of any given period. The US regime has these features. I give numerical examples which show the efficiency gains from increasing the number of creditors are significant. The UK voting rule allows one creditor a veto of all plans. Replacing the majority voting rule with the UK voting rule and allowing only the creditor with the veto to suggest plans, I show that the UK regime has longer delays and is less efficient than the US regime as long as the US regime has multiple creditors. Keywords; bankruptcy, bargaining, majority vote JEL Classification: C7, G3, N20

New Economics Papers: this item is included in nep-fin
View list of references

Downloads: (external link)
http://www.socsci.soton.ac.uk/Economics/Research/Discussion_Papers/2006/0601.pdf

Related works:
Working Paper: Fast Bargaining in Bankruptcy (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:stn:sotoec:0601

Access Statistics for this paper

More papers in Discussion Paper Series In Economics And Econometrics from University of Southampton, Economics Division, School of Social Sciences
Contact information at EDIRC.
Series data maintained by Chris Thorn ().