Path Dependence in the Development of U.S. Bankruptcy Law, 1880-1938
American University - Department of Economics
Bradley A. Hansen
University of Mary Washington - Department of Economics
Journal of Institutional Economics, Forthcoming
We illustrate mechanisms that can give rise to path dependence in legislation. Specifically, we show how debtor-friendly bankruptcy law arose in the United States as a result of a path dependent process. The 1898 Bankruptcy Act was not regarded as debtor-friendly at the time of its enactment, but the enactment of the law gave rise to changes in interest groups, changes in beliefs about the purpose of bankruptcy law, and changes in the Democratic Party's position on bankruptcy that set the United States on a path to debtor-friendly bankruptcy law. An analysis of the path dependence of bankruptcy law produces an interpretation that is more consistent with the evidence than the conventional interpretation that debtor-friendliness in bankruptcy law began with political compromises to obtain the 1898 Bankruptcy Act.
Keywords: path dependence, legislative change, bankruptcy law, interest groups, ideology
JEL Classification: N42
Date posted: June 17, 2006
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