A U.S. Perspective on the Contextual Terrain of Political Economy in Insolvency Reform

Abstract:     
The legislative history of the 2005 revisions to the U.S. Bankruptcy Code has been well documented. Yet these revisions created a puzzle for political economists. If, as other scholars (mostly rightly) contend, American debtors enjoy lobbying power that would make their foreign counterparts blush, where did they go wrong in 2005? Indeed, a comparison to the Canadian experience, where insolvency laws were also recently amended, only sharpens this puzzle. In Canada, commercial banks wallow in well-concentrated power; yet there the outcome was much more debtor-friendly than in the United States. Traditional political economy accounts would have predicted a harsher Canadian law and a softer U.S. one, but closer to the opposite was the case. This book chapter probes this unexpected outcome. Its (concededly rudimentary) political economy analysis suggests that the divergence lay in the different "terrains" of the insolvency lobbying landscape. Creditors in the United States reframed the initial debate, which enabled them to discredit and distract potential adversaries, and which in turn helped them overcome the apparently superior bargaining endowment of debtors (or, more precisely, the debtors' proxies in the bench, bar, and academy). The Canadian debtors escaped this fate. As such, the traditional accounts still generally hold; it was the political economy landscape - the "lobbysphere" - that was different.

Number of Pages in PDF File: 24

Keywords: insolvency, political economy

JEL Classification: A13

Accepted Paper Series