An Economic Analysis of Transnational Bankruptcies
36 Pages Posted: 12 Jul 2000 Last revised: 10 Apr 2008
Date Written: March 2000
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 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.
Suggested Citation: Suggested Citation