Different Policies for Corporate Creditor Protection
Posted: 19 Feb 2007
Rules on corporate creditor protection are asymmetric rules. Rules which could increase the welfare of one class of creditors could at the same time reduce the welfare of another class. Different classes of creditors often coincide with different social groups (unskilled workers, small trade creditors, etc.). As we do not have an universally accepted social welfare function, the results of the comparisons between gains and losses caused by each rule are, in terms of overall welfare (efficiency), indeterminate. In conclusion, the choice of the best system of creditor protection is not a matter of efficiency but of fairness and political judgments. From this viewpoint, many arguments can support the preference for a rule (the net system with its formal test) rather than a more flexible standard.
Keywords: corporate creditor protection rules, welfare, fairness, symmetric and asymmetric rules, the net system, rules versus standards
JEL Classification: K20
Suggested Citation: Suggested Citation