What Drives the Optimal Bankruptcy Law Design?

Ondrej Vychodil and Ondøej Knot ()
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Ondøej Knot: Center for Economic Research and Graduate Education-Economics Institute, Prague, Czech Republic, http://www.cerge.cuni.cz/default.asp

No 62, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: The extensive economic research of bankruptcy within the last decade has made many issues connected with bankruptcy legislation much clearer but there is still a large area of disagreement about how an optimal bankruptcy law should look like. At the same time, the actual bankruptcy laws in various countries differ substantially and there is an agreement that there is no one-size-fits-all solution. This paper sets stage for the debate about the optimal bankruptcy law design in the Czech Republic. It shows what problems arise in connection with bankruptcy, what methods can be used to solve them, and what are the trade-offs faced by the use of individual methods. First, the question why bankruptcy legislation is needed at all is answered. Further, three mutually intersecting approaches to the determinants of optimal bankruptcy law design are presented: concepts of ex-post and ex-ante efficiency, principal-agent theory view, and the emphasis on judicial corruption problems within different bankruptcy designs.

Keywords: bankruptcy; capital and ownership structure; ex-ante and ex-post efficiency; asymmetric information; moral hazard; judicial corruption (search for similar items in EconPapers)
Pages: 11 pages
Date: 2004, Revised 2004
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