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Ex-Ante vs. Ex-Post Efficiency in Personal Bankruptcy Proceedings Author info | Abstract | Publisher info | Download info | Related research | Statistics Eva-Maria Steiger ()
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Amidst a sharp increase in household debt levels, many countries have substantially reformed their consumer bankruptcy regulations. I first classify the mechanisms triggered by current U.S. and European bankruptcy regulations and then evaluate these mechanisms within a hidden action model. I analyze the consumer’s incentives prior to distress and during a ’period of good conduct’ following bankruptcy, appraising the capacity of existing regulations to implement those conflicting objectives. Though the institution of debt release provides adequate bankruptcy regulation ex-post, the prospect of debt release also distorts the debtor’s choices prior to distress. I propose alternative regulations that provide superior incentives, minimizing the overall distortions at both dates. A numerical example illustrates the findings.
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Paper provided by Max Planck Institute of Economics, Strategic Interaction Group in its series Discussion Papers on Strategic Interaction with number
2006-17.
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Length: 31 pages
Date of creation: Sep 2006Date of revision:
Handle: RePEc:esi:discus:2006-17Contact details of provider: Postal: Kahlaische Strasse 10, D-07745 Jena Phone: +49-3641-68 65 Fax: +49-3641-68 69 90 Web page: http://www.econ.mpg.de/ More information through EDIRC
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Keywords: Personal Bankruptcy Limited Liability Moral Hazard Law & Economics Find related papers by JEL classification: D18 - Microeconomics - - Household Behavior - - - Consumer Protection D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation K35 - Law and Economics - - Other Substantive Areas of Law - - - Personal Bankruptcy Law
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.: Adler, Barry & Polak, Ben & Schwartz, Alan, 2000.
"Regulating Consumer Bankruptcy: A Theoretical Inquiry ,"
Journal of Legal Studies ,
University of Chicago Press, vol. 29(2), pages 585-613, June.
Other versions: Jochen Bigus & Eva-Maria Steiger, 2006.
"When it pays to be honest: How a variable period of good conduct can improve incentives in personal bankruptcy proceedings ,"
European Journal of Law and Economics ,
Springer, vol. 22(3), pages 233-253, November.
[Downloadable!] (restricted)
Song Han & Wenli Li, 2004.
"Fresh start or head start? The effect of filing for personal bankruptcy on the labor supply ,"
Working Papers
04-5, Federal Reserve Bank of Philadelphia.
[Downloadable!]
Other versions: Wang, Hung-Jen & White, Michelle J, 2000.
"An Optimal Personal Bankruptcy Procedure and Proposed Reforms ,"
Journal of Legal Studies ,
University of Chicago Press, vol. 29(1), pages 255-86, January.
Other versions: Aghion, P. & Hermalin, B., 1990.
"Legal Restrictions on Private Contracts Can Enhance Efficiency ,"
DELTA Working Papers
90-14, DELTA (Ecole normale supérieure).
Other versions: Michelle J. White, 2005.
"Economic Analysis of Corporate and Personal Bankruptcy Law ,"
NBER Working Papers
11536, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Michel A. Robe & Eva-Maria Steiger & Pierre-Armand Michel, 2006.
"Penalties and Optimality in Financial Contracts: Taking Stock ,"
SFB 649 Discussion Papers
SFB649DP2006-013, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
[Downloadable!]
Christoph Zaborowski & Peter Zweifel, 1999.
"Getting Out of Debt: Garnishment of Wage in Whose Interest? ,"
European Journal of Law and Economics ,
Springer, vol. 8(3), pages 207-230, November.
[Downloadable!] (restricted)
Patrick Bolton & Howard Rosenthal, 2002.
"Political Intervention in Debt Contracts ,"
Journal of Political Economy ,
University of Chicago Press, vol. 110(5), pages 1103-1134, October.
[Downloadable!] (restricted)
Rea, Samuel A, Jr, 1984.
"Arm-breaking, Consumer Credit and Personal Bankruptcy ,"
Economic Inquiry ,
Oxford University Press, vol. 22(2), pages 188-208, April.
Berkowitz, Jeremy & Hynes, Richard, 1999.
"Bankruptcy Exemptions and the Market for Mortgage Loans ,"
Journal of Law & Economics ,
University of Chicago Press, vol. 42(2), pages 809-30, October.
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