Efficiency and Distributional Fairness in a Bankruptcy Procedure: A Laboratory Experiment
Rajesh Kumar et al.
What the paper says
Abstract We undertake a laboratory experiment to evaluate whether the corporate bankruptcy procedure employed under the current Indian law simultaneously achieves the dual objectives of efficiency and fairness. As the baseline scenario, we deploy the procedure used under the current Indian bankruptcy law. The law adopts a unique mandatory auction mechanism, which combines the claim distribution mechanism with the asset deployment process of the bankrupt firm. Results reveal that, under the existing mechanism, there exists a fairness-efficiency trade-off. If the outcome is efficient, i.e. if the value of the firm is maximized, then it is often distributionally unfair, i.e. the operational creditors do not get their fair share of claim recovery. In contrast, if the outcome is distributionally fair, then it may be inefficient. We introduced a mechanism that separates the deployment and distribution processes. Efficiency and fairness simultaneously improve under the modified mechanism.
1 citation
Evidence weight
Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40
| F · citation impact | 0.16 × 0.4 = 0.06 |
| M · momentum | 0.53 × 0.15 = 0.08 |
| V · venue signal | 0.50 × 0.05 = 0.03 |
| R · text relevance † | 0.50 × 0.4 = 0.20 |
† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.