The Market is Fairer than Bebchuk's Scheme
Greifswald Economics Working Paper No. 9/00
28 Pages Posted: 25 Mar 2001
Date Written: August 2000
Bebchuk's proposal for bankruptcy reform is described and analyzed, in particular his claim that using options is fair and that the participants of such a bankruptcy procedure have no basis to complain. It will be shown that some reasons for complaining remain. Above all, the proposal has a systematic bias against junior creditors and former shareholders because they have to pay for unavoidable mistakes in estimating the company's value and may lack the financial resources to exercise their options. A market solution will be specified that is fairer than Bebchuk's scheme according to his own standards.
JEL Classification: G33, K39, K22
Suggested Citation: Suggested Citation