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What Drives the Optimal Bankruptcy Law Design? (in English)

  • Ondøej Knot

    ()

    (CERGE-EI, Prague, and Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague)

  • Ondøej Vychodil

    ()

    (CERGE-EI, Prague, and Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague)

In this paper the authors discuss the factors that interact in the design of an optimal bankruptcy law. The authors focus on issues that are often overlooked in both the policy debate and in the academic research on bankruptcy. After answering the question why a bankruptcy law is needed at all, the authors discuss the criteria of ex ante vs. ex post efficiency. The second factor the authors deal with is institutional quality, namely the quality of the judiciary. They argue that, considering factors such as imprudence and corruption, it may be optimal to resign on the first-best solution that could be theoretically achievable with a benevolent and omniscient judiciary. The optimal bankruptcy law would then contain more simple and automatic rules and less space for judicial (i.e., individual) discretion. The authors� concluding comment concerns the lack of empirical research in the bankruptcy area in the Czech Republic and the essential need for such research.

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Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

Volume (Year): 55 (2005)
Issue (Month): 3-4 (March)
Pages: 110-123

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Handle: RePEc:fau:fauart:v:55:y:2005:i:3-4:p:110-123
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  1. Bolton, Patrick & Scharfstein, David S, 1996. "Optimal Debt Structure and the Number of Creditors," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 1-25, February.
  2. Aghion, Philippe & Hart, Oliver & Moore, John, 1992. "The Economics of Bankruptcy Reform," Journal of Law, Economics and Organization, Oxford University Press, vol. 8(3), pages 523-46, October.
  3. Ernst-Ludwig VON THADDEN & Erik BERGLÖF & Gérard ROLAND, 2003. "Optimal Debt Design and the Role of Bankruptcy," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 03.13, Université de Lausanne, Faculté des HEC, DEEP.
  4. Oliver Hart, 2000. "Different Approaches to Bankruptcy," NBER Working Papers 7921, National Bureau of Economic Research, Inc.
  5. Lambert-Mogiliansky, Ariane & Sonin, Konstantin & Zhuravskaya, Ekaterina, 2000. "Capture of Bankruptcy: Theory and Evidence from Russia," CEPR Discussion Papers 2488, C.E.P.R. Discussion Papers.
  6. Berkovitch, Elazar & Israel, Ronen, 1999. "Optimal Bankruptcy Laws across Different Economic Systems," Review of Financial Studies, Society for Financial Studies, vol. 12(2), pages 347-77.
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