The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Bankruptcy Law, Economics of Corporate and Personal

  • Michelle J. White
Reference work entry


Bankruptcy is the legal process whereby financially distressed firms, individuals, and occasionally governments resolve their debts. The bankruptcy process for firms plays a central role in economics, because competition tends to drive inefficient firms out of business, thereby raising the average efficiency level of those remaining. Bankruptcy also has an important economic function for individual debtors, since it provides them with partial consumption insurance and supplements the government- provided safety net. This article discusses the economic objectives of bankruptcy and surveys theoretical and empirical research on corporate and personal bankruptcy.


Absolute Priority Rule (APR) Auctions Bankruptcy Bankruptcy contracting Bankruptcy law, economics of corporate and personal Bankruptcy, economics of Consumption insurance Equity finance Fresh start Limited liability Liquidation Options Reorganization Risk and return Strategic default 

JEL Classifications

K3 K35 K2 G3 
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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Michelle J. White
    • 1
  1. 1.