Congress's Temptation to Defect: A Political and Economic Theory of Legislative Resolutions to Financial Common Pool Problems
Posted: 8 Feb 1997
Date Written: January 1997
In this Article, I characterize the Bankruptcy Code as a fragile collection of statutory liability rules that are intended to resolve the common pool problems faced by the creditors of a financially distressed debtor. I argue that creditors' self-interested races to amend these bankruptcy laws have not resulted in welfare-maximizing legislation, much in the same way that rational creditors' races to levy against the assets of a financially distress debtor do not maximize creditors' collective interests.Part I briefly reviews bankruptcy scholarship on the politics of bankruptcy law. It concludes that, although bankruptcy theorists have considered the necessity for bankruptcy law and its normative underpinnings, they have not addressed the process by which Congress enacts these laws. Part II draws on game theory to define the circumstances under which a common pool problem occurs and is solved, either through self-help or the enactment of statutory rules of liability. Part III next critically and comparatively describes economic and political theories of legislation. Part IV then combines game theory with public choice and interest group theories in a model of legislative resolutions to common pool problems. It identifies the weaknesses inherent when rules of liability are enacted to resolve common pool problems, generally, and financial common pool problems, specifically, and distinguishes the pressure for their enactment or repeal from the pressure for their revision.
JEL Classification: G33, G38, K22
Suggested Citation: Suggested Citation