IDEAS home Printed from https://ideas.repec.org/p/red/sed004/664.html
   My bibliography  Save this paper

Fast Bargaining in Bankruptcy

Author

Listed:
  • David Benjamin

Abstract

I 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

Suggested Citation

  • David Benjamin, 2004. "Fast Bargaining in Bankruptcy," 2004 Meeting Papers 664, Society for Economic Dynamics.
  • Handle: RePEc:red:sed004:664
    as

    Download full text from publisher

    File URL: http://www.econ.umn.edu/~benjamin/bankruptcypaper2.pdf
    File Function: main text
    Download Restriction: no

    More about this item

    Keywords

    Bargaining; Bankruptcy; Majority Voting;

    JEL classification:

    • 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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed004:664. 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: (Christian Zimmermann). General contact details of provider: http://edirc.repec.org/data/sedddea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.