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Matching Bankruptcy Laws to Legal Environments
Social Science Research Network
We study a model of optimal bankruptcy law in an environment where legal quality can vary along two dimensions: the expertise of judges, and the quality of contract enforcement. We analyze a model in which a judicially-in ‡uenced bankruptcy process can enhance the e¢ ciency of incomplete contracts by conditioning the allocation of control rights in bankruptcy on ...rm quality. We consider the optimal balance of debtor and creditor interests as a function of the legal environment, and show thatdoi:10.2139/ssrn.613641 fatcat:ejrnahbx7fh3rjhmuz7bjiqfwm