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adjudication  bankruptcy  cases  debt suspension  debt  decision  effect  hdc  households  indebtedness  jel  optimal  stage  suspension 
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Preview: Journal of Law, Economics, and Organization - Advance Access

The Journal of Law, Economics, and Organization Advance Access

Published: Thu, 02 Nov 2017 00:00:00 GMT

Last Build Date: Fri, 03 Nov 2017 02:54:59 GMT


Households Debt Restructuring: The Re-default Effects of a Debt Suspension


When facing financial distress, French households can file a case to a “households’ over-indebtedness commission” (HDC). The HDC can order an immediate repayment or grant a debt suspension. Exploiting the random assignment of bankruptcy filings to managers, we show that a debt suspension has a very significant and negative effect on the likelihood to re-default but that this impact is only short-lived. The effect depends not only on the characteristics of the households but also on the nature of their indebtedness. Our results imply that rather than focusing on a specific debt profile, above all a deeper restructuring of the expenditure side is necessary to make the plan sustainable in case of an uniform increase of the HDC severity. They also single out specific banks lending to particular fragile households. They indicate the importance of policy actions on budget counseling, as well as the importance of regulation of credit distribution to avoid both entering into bankruptcy and re-filing for bankruptcy. (JEL D14, K35, G28)

Optimal Multistage Adjudication


In many settings, there are preliminary or interim decision points at which legal cases may be terminated: for example, motions to dismiss and for summary judgment in US civil litigation, grand jury decisions in criminal cases, and agencies’ screening and other exercises of discretion in pursuing investigations. This article analyzes how the decision whether to continue versus terminate should optimally be made when (A) proceeding to the next stage generates further information but at a cost to both the defendant and the government and (B) the prospect of going forward, and ultimately imposing sanctions, deters harmful acts and also chills desirable behavior. This subject involves a mechanism design analogue to the standard value of information problem, one that proves to be qualitatively different and notably more complex. Numerous factors enter into the optimal decision rule—some expected, some subtle, and some counterintuitive. The optimal rule for initial or intermediate stages is also qualitatively different from that for assigning liability at the final stage of adjudication. (JEL D81, D82, K14, K41, K42)