Fast Bargaining in Bankruptcy
AbstractI combine two previously separate strands of the bargaining literature to present a bargaining model with both one-sided private information and a majority vote for proposals to go into effect. I use this model to show that the US bankruptcy code produces shorter delays and higher welfare than the UK law. I consider the bargaining that occurs in bankruptcy between an informed firm and a set of uninformed creditors over a set of new debt contracts. The agents have an infinite horizon to bargain and cannot commit to a schedule of future offers. If individual creditors can be treated differently and a majority vote is required for the acceptance of new debt contracts, adding creditors increases the probability of reaching agreement by the end of any given period. The US regime has these features. I give numerical examples which show the efficiency gains from increasing the number of creditors are significant. The UK voting rule allows one creditor a veto of all plans. Replacing the majority voting rule with the UK voting rule and allowing only the creditor with the veto to suggest plans, I show that the UK regime has longer delays and is less efficient than the US regime as long as the US regime has multiple creditors
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 664.
Date of creation: 2004
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Bargaining; Bankruptcy; Majority Voting;
Other versions of this item:
- Benjamin, David, 2006. "Fast bargaining in bankruptcy," Discussion Paper Series In Economics And Econometrics 0601, Economics Division, School of Social Sciences, University of Southampton.
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
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