Efficient priority rules under default: the case of traditio versus contract principle

Jens Andreasson, Wolfgang Faber, Shubhashis Gangopadhyay, Claes Martinson and Stefan Sjögren ()
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Jens Andreasson: University of Gothenburg
Wolfgang Faber: University of Salzburg
Shubhashis Gangopadhyay: University of Gothenburg
Claes Martinson: University of Gothenburg
Stefan Sjögren: University of Gothenburg

European Journal of Law and Economics, 2021, vol. 51, issue 1, No 3, 97-128

Abstract: Abstract We investigate the economic consequences of the traditio and the contract principle—differing in how they determine the priority rights for an item sold but not delivered. Our results suggest that the two principles are equivalent in terms of the net utilities enjoyed by involved actors. For example, a lower price paid for a forward transaction under a traditio principle can be compensated by better credit terms, implying there is no competitive advantage for either the seller or buyer under any principle. We demonstrate how market prices, incorrectly used, may misleadingly favour a contract principle, and discuss how fraudulent behaviour better supports a traditio regime. We also contribute to the legal discussion on priority regimes of undelivered items basing our discussion on bankruptcy priority laws instead of distribution of ownership.

Keywords: Priority rules; Bankruptcy; Traditio principle; Delivery model; Transfer of ownership (search for similar items in EconPapers)
JEL-codes: G33 K00 K20 L50 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s10657-020-09668-0

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