The Law and Economics of Corporate Insolvency: A Review

Abstract

Law and economics scholarship has contributed greatly to our understanding of corporate insolvency law. This paper provides an overview of this literature. It begins by defining some relevant terminology, and then reviews theories about the goals of insolvency law. It then considers Jackson's well-known claim that insolvency law exists as a response to a common pool problem, and continues by looking at suggestions for reducing the costs of financial distress both ex post and ex ante. Finally, it asks whether a solution to the common pool problem might not be sought through contract, or indeed through reliance on social norms.

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