The University of Southampton
University of Southampton Institutional Repository

Fast bargaining in bankruptcy

Fast bargaining in bankruptcy
Fast bargaining in bankruptcy
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 claims against the firm. 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 claims, 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.

0966-4246
601
University of Southampton
Benjamin, David
6b774131-63cb-414e-8ccd-1960bffe1611
Benjamin, David
6b774131-63cb-414e-8ccd-1960bffe1611

Benjamin, David (2006) Fast bargaining in bankruptcy (Discussion Papers in Economics and Econometrics, 601) Southampton, UK. University of Southampton 29pp.

Record type: Monograph (Discussion Paper)

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 claims against the firm. 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 claims, 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.

PDF
0601.pdf - Version of Record
Download (903kB)

More information

Published date: 1 January 2006

Identifiers

Local EPrints ID: 39650
URI: https://eprints.soton.ac.uk/id/eprint/39650
ISSN: 0966-4246
PURE UUID: 3d653ad4-104c-4a72-8086-290bbd0948d4

Catalogue record

Date deposited: 29 Jun 2006
Last modified: 17 Jul 2017 15:36

Export record

Download statistics

Downloads from ePrints over the past year. Other digital versions may also be available to download e.g. from the publisher's website.

View more statistics

Atom RSS 1.0 RSS 2.0

Contact ePrints Soton: eprints@soton.ac.uk

ePrints Soton supports OAI 2.0 with a base URL of https://eprints.soton.ac.uk/cgi/oai2

This repository has been built using EPrints software, developed at the University of Southampton, but available to everyone to use.

We use cookies to ensure that we give you the best experience on our website. If you continue without changing your settings, we will assume that you are happy to receive cookies on the University of Southampton website.

×