We reexamine the consistency axiom in bankruptcy problems and propose arguments in favor of an alternative definition of a reduced problem. The classical definition updates the size of the estate while keeping agents' claims unaffected. Instead, we suggest updating agents' claims along with the estate. The resulting consistency axiom characterizes the well-known Random Arrival rule as the unique bilaterally consistent extension of the Contested Garment rule to many agents. We also establish that our definition of a reduced bankruptcy problem corresponds to the definition of a reduced TU game proposed in Hart & Mas-Colell (Econometrica, 1989).
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Paper provided by HEC Montréal, Institut d'économie appliquée in its series Cahiers de recherche with number
08-08.
Length: 14 pages Date of creation: Aug 2008 Date of revision: Handle: RePEc:iea:carech:0808
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