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Bankruptcy judge as a central planner

In: Research Handbook on Austrian Law and Economics

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  • Todd J. Zywicki
  • Shruti Rajagopalan

Abstract

In this chapter we provide an explanation for why the Chapter 11 reorganization process cannot accurately value and reorganize an insolvent firm. Due to the information and incentive vacuum of the reorganization process, Chapter 11 places the bankruptcy judge in the same institutional setting as a central planner. Therefore, the bankruptcy judge is given the impossible task of economic calculation without the relevant market data to calculate the same. Given the inability to make market allocations, Chapter 11 allocations are prone to rent-seeking and interest group capture.

Suggested Citation

  • Todd J. Zywicki & Shruti Rajagopalan, 2017. "Bankruptcy judge as a central planner," Chapters, in: Todd J. Zywicki & Peter J. Boettke (ed.), Research Handbook on Austrian Law and Economics, chapter 17, pages 371-397, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:13939_17
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    Economics and Finance; Law - Academic;

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