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Liability games

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  • Csóka, Péter
  • Jean-Jacques Herings, P.

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.

Suggested Citation

  • Csóka, Péter & Jean-Jacques Herings, P., 2019. "Liability games," Games and Economic Behavior, Elsevier, vol. 116(C), pages 260-268.
    • Handle: RePEc:eee:gamebe:v:116:y:2019:i:c:p:260-268
    DOI: 10.1016/j.geb.2019.05.007
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    More about this item

    Keywords

    Liability problems; Insolvency; Deficiency; Bankruptcy games; Nucleolus; Proportional rule;
    All these keywords.

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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