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Priority and proportionality in bankruptcy

Author

Listed:
  • Karol Flores-Szwagrzak

    (Copenhagen Business School)

  • Jaume García-Segarra

    (University of Cologne)

  • Miguel Ginés-Vilar

    (University Jaume I of Castellón)

Abstract

We study the problem of distributing the liquidation value of a bankrupt firm among its creditors (O’Neill, Math Soc Sci 2(4):345–371, 1982; Aumann and Maschler, J Econ Theory 36(2):195–213, 1985). Real-life distribution rules prioritize predetermined creditor groups, dividing the amount assigned to each group proportionally to claims. We provide the first axiomatic characterization of such rules. In addition to the classical consistency and continuity axioms, these rules are characterized by the following properties: (1) bankruptcy problems with the same claims and where each claimant’s award is positive in each problem can be solved either jointly or separately without altering the recommended awards, (2) a dual property specifying that bankruptcy problems with the same claims and where each claimant’s loss is positive can be solved either jointly or separately without altering the recommended awards.

Suggested Citation

  • Karol Flores-Szwagrzak & Jaume García-Segarra & Miguel Ginés-Vilar, 2020. "Priority and proportionality in bankruptcy," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 54(4), pages 559-579, April.
    • Handle: RePEc:spr:sochwe:v:54:y:2020:i:4:d:10.1007_s00355-019-01219-0
    DOI: 10.1007/s00355-019-01219-0
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    References listed on IDEAS

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    Cited by:

    1. Flores-Szwagrzak, Karol & Østerdal, Lars Peter, 2024. "Rationalizing Sharing Rules," Working Papers 17-2024, Copenhagen Business School, Department of Economics.

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    More about this item

    JEL classification:

    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations

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