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Bankruptcy Problems with Reference-Dependent Preferences

Author

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  • Andrea Gallice

    (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy)

Abstract

We study bankruptcy problems under the assumption that claimants have reference-dependent preferences. We show that in such a context, standard allocative rules are no longer equivalent from the viewpoint of the level of welfare that they generate. A clear ranking of the most prominent rules actually emerges. Welfare thus becomes an additional dimension that an arbitrator may want to consider in deciding which allocation to implement. We then introduce a new rule that always maximizes welfare and discuss its pros and cons.

Suggested Citation

  • Andrea Gallice, 2016. "Bankruptcy Problems with Reference-Dependent Preferences," Working papers 038, Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
  • Handle: RePEc:tur:wpapnw:038
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    References listed on IDEAS

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    Cited by:

    1. Andrea Gallice, 2022. "Bankruptcy Problems with Self-Serving Biased Reference Points," Carlo Alberto Notebooks 683 JEL Classification: D, Collegio Carlo Alberto.
    2. Csoka, Peter & Herings, Jean-Jacques, 2022. "Centralized Clearing Mechanisms in Financial Networks : A Programming Approach," Discussion Paper 2022-008, Tilburg University, Center for Economic Research.
    3. 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; Claims; Reference-Dependent Preferences; 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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