Liability games

Péter Csóka and P. Jean-Jacques Herings

Games and Economic Behavior, 2019, vol. 116, issue C, 260-268

Abstract: We analyze the question of how to distribute the asset value of an insolvent firm among its creditors and the firm itself. Compared to standard bankruptcy games as studied in the game-theoretic literature, we treat the firm as a player and define a new class of transferable utility games called liability games. We show that the core of a liability game is empty. We analyze the nucleolus of the game. The firm always gets a positive payment, at most equal to half of the asset value. Creditors with higher liabilities receive higher payments, but also suffer from higher deficiencies. We provide conditions under which the nucleolus coincides with a generalized proportional rule.

Keywords: Liability problems; Insolvency; Deficiency; Bankruptcy games; Nucleolus; Proportional rule (search for similar items in EconPapers)
JEL-codes: C71 G10 (search for similar items in EconPapers)
Date: 2019
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Related works:
Working Paper: Liability Games (2017)
Working Paper: Liability Games (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:116:y:2019:i:c:p:260-268

DOI: 10.1016/j.geb.2019.05.007

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