Bankruptcy is the legal process whereby financially distressed firms, individuals, and occasionally governments resolve their debts. The bankruptcy process for firms plays a central role in economics, because competition drives inefficient firms out of business, thereby raising the average efficiency level of those remaining. The main economic function of corporate bankruptcy is to reduce the cost of default by having a government-sponsored procedure that resolves all debts simultaneously. The main economic function of personal bankruptcy is to provide partial consumption insurance to individual debtors and therefore reduce the social cost of debt. This chapter surveys theoretical and empirical research on both types of bankruptcy.
|This chapter was published in: ||This item is provided by Elsevier in its series Handbook of Law and Economics with number
2-14.||Handle:|| RePEc:eee:lawchp:2-14||Contact details of provider:|| Web page: http://www.elsevierdirect.com/product.jsp?isbn=9780444512352|
When requesting a correction, please mention this item's handle: RePEc:eee:lawchp:2-14. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If references are entirely missing, you can add them using this form.