Many litigated written contracts require interpretation, but few formal treatments of the interpretive process exist. This paper analyzes welfare-maximizing interpretive rules. It shows that (1) accurate interpretations maximize expected gains by rewarding parties only for compliant...

We consider legal rules that determine the price at which minority shareholders can be excluded from the corporate enterprise after a change in control. These rules affect investment after such a change, as well as probability of the change itself. Our principal results are that minority...

The fees of professionals (financial advisors, lawyers, accountants) are a substantial fraction of bankruptcy costs. Scholars have considered how best to reduce these costs but have not considered how they should be allocated among creditors. Creditors can spend redistributionally (to violate or...

This paper uses a principal/agent framework to analyze consumer bankruptcy. The bankruptcy discharge partly insures risk-averse borrowers against bad income realizations but also reduces the borrower's incentive to avoid insolvency. Among our results are the following: (a) high bankruptcy...

This article asks whether competition can ameliorate the consequences of cognitive error. Consumers differ cognitively, some being more prone to err (the "naive") than others (the "sophisticated"). Competition among firms is analyzed with a search equilibrium model. Firms offer an exploitative...