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Bankruptcy Problems with Reference-Dependent Preferences

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  • Andrea Gallice

Abstract

I study bankruptcy problems under the assumption that claimants have referencedependent preferences. I consider different specifications for claimants’ reference points and show how perceived gains and losses impact on aggregate welfare. I can thus rank the four most prominent rules (Proportional, Constrained Equal Awards, Constrained Equal Losses, and Talmud) on the basis of the level of utilitarian and maxmin welfare that they generate. When none of these rules maximizes welfare, I identify the rule that does it and discuss its properties.

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  • Andrea Gallice, 2018. "Bankruptcy Problems with Reference-Dependent Preferences," Carlo Alberto Notebooks 555, Collegio Carlo Alberto.
  • Handle: RePEc:cca:wpaper:555
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    References listed on IDEAS

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    Cited by:

    1. Andrea Gallice, 2020. "Self-Serving Biased Reference Points in Bankruptcy Problems," Working papers 067, Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.

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    More about this item

    Keywords

    bankruptcy problems; reference-dependent preferences; reference points; utilitarian welfare; maxmin welfare.;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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