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Efficient priority rules under default: the case of traditio versus contract principle

Author

Listed:
  • Jens Andreasson

    (University of Gothenburg)

  • Wolfgang Faber

    (University of Salzburg)

  • Shubhashis Gangopadhyay

    (University of Gothenburg
    India Development Foundation
    University of Groningen
    Indian School of Public Policy)

  • Claes Martinson

    (University of Gothenburg)

  • Stefan Sjögren

    (University of Gothenburg)

Abstract

We investigate the economic consequences of the traditio and the contract principle—differing in how they determine the priority rights for an item sold but not delivered. Our results suggest that the two principles are equivalent in terms of the net utilities enjoyed by involved actors. For example, a lower price paid for a forward transaction under a traditio principle can be compensated by better credit terms, implying there is no competitive advantage for either the seller or buyer under any principle. We demonstrate how market prices, incorrectly used, may misleadingly favour a contract principle, and discuss how fraudulent behaviour better supports a traditio regime. We also contribute to the legal discussion on priority regimes of undelivered items basing our discussion on bankruptcy priority laws instead of distribution of ownership.

Suggested Citation

  • Jens Andreasson & Wolfgang Faber & Shubhashis Gangopadhyay & Claes Martinson & Stefan Sjögren, 2021. "Efficient priority rules under default: the case of traditio versus contract principle," European Journal of Law and Economics, Springer, vol. 51(1), pages 97-128, February.
    • Handle: RePEc:kap:ejlwec:v:51:y:2021:i:1:d:10.1007_s10657-020-09668-0
    DOI: 10.1007/s10657-020-09668-0
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    References listed on IDEAS

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    More about this item

    Keywords

    Priority rules; Bankruptcy; Traditio principle; Delivery model; Transfer of ownership;
    All these keywords.

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • K00 - Law and Economics - - General - - - General (including Data Sources and Description)
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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