Bankruptcy Judge as a Central Planner
Research Handbook on Austrian Law and Economics, Todd Zywicki and Peter Boettke (eds.), Edward Elgar, 2017
39 Pages Posted: 21 Apr 2013 Last revised: 18 Sep 2018
Date Written: April 18, 2013
In this paper we provide an explanation for why the Chapter 11 reorganization process cannot accurately value and reorganize an insolvent firm. Due to the information and incentive vacuum of the reorganization process, Chapter 11 places the bankruptcy judge is in the same institutional setting as a central planner. Therefore, the bankruptcy judge is given the impossible task of economic calculation without the relevant market data to calculate the same. Given the inability to make market allocations, Chapter 11 allocations are prone to rent-seeking and interest group capture.
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