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Bankruptcy Judge as a Central Planner

Research Handbook on Austrian Law and Economics, Todd Zywicki and Peter Boettke (eds.), Edward Elgar, Forthcoming

George Mason Law & Economics Research Paper No. 13-27

Posted: 21 Apr 2013  

Todd J. Zywicki

George Mason University - Antonin Scalia Law School, Faculty; PERC - Property and Environment Research Center

Shruti Rajagopalan

Department of Economics, SUNY Purchase College; Classical Liberal Institute, NYU School of Law

Date Written: April 18, 2013

Abstract

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 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.

Suggested Citation

Zywicki, Todd J. and Rajagopalan, Shruti, Bankruptcy Judge as a Central Planner (April 18, 2013). Research Handbook on Austrian Law and Economics, Todd Zywicki and Peter Boettke (eds.), Edward Elgar, Forthcoming; George Mason Law & Economics Research Paper No. 13-27. Available at SSRN: https://ssrn.com/abstract=2253477

Todd J. Zywicki (Contact Author)

George Mason University - Antonin Scalia Law School, Faculty ( email )

3301 Fairfax Drive
Arlington, VA 22201
United States
703-993-8091 (Phone)
703-993-8088 (Fax)

PERC - Property and Environment Research Center

2048 Analysis Drive
Suite A
Bozeman, MT 59718
United States

Shruti Rajagopalan

Department of Economics, SUNY Purchase College ( email )

735 Anderson Hill Road
Purchase, NY 10577
United States

Classical Liberal Institute, NYU School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

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