An Economic Analysis of Transnational Bankruptcies
31 Pages Posted: 11 Jul 2000 Last revised: 5 May 2009
This paper analyzes the effects of the legal rules governing transnational bankruptcies. We compare a regime of "territoriality" - in which assets are adjudicated by the jurisdiction in which they are located at the time of the bankruptcy - with a regime of "universality," in which all assets are adjudicated in a single jurisdiction. Territoriality is shown to generate a distortion in investment patterns that might lead to an inefficient allocation of capital across countries. We also analyze who gains and who loses from territoriality, explain why countries engage in it even though it reduces global welfare, and identify what can be done to achieve universality.
JEL Classification: G33, G15
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