We study the effect of legal constraints in an environment in which agents face demand shocks they would like to smooth, but the agents also have weakness of will: their long and short run preferences are misaligned. Some agents are sophisticated - they know they will make inconsistent...

This paper asks whether market competition can ameliorate the effect of cognitive error. Competition is possible because consumers differ cognitively, some consumers being more prone to err (the quot;naivequot;) than others (the quot;sophisticatedquot;). The approach here is to create a search...

It is widely agreed that capital cost reduction should be among the goals that a business bankruptcy law should pursue. This Essay argues that capital cost reduction should be the only goal, and that a bankruptcy system seriously committed to this goal would be both smaller and less centralized...

The fees of experts (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. The allocation issue is important because creditors can...

The regulatory compliance defense holds firms liable whose products or product warnings fail to satisfy federal regulatory standards, but does not exculpate firms that comply. Rather, compliance is relevant evidence for a jury to consider in a products liability action. This article argues that...

Creditors and the insolvent firm are required to use the state supplied bankruptcy procedure if they cannot agree on a private resolution after financial distress has occurred. While these ex post workouts are legal, parties cannot agree in the lending contracts to use a bankruptcy procedure...

Section 365 of the Bankruptcy Code prohibits enforcement of the once common quot;ipso factoquot; clause.quot; The clause excuses the solvent party from performance of the contract when the other party becomes insolvent. We show that the ability of insolvent firms to continue bad projects is...

This essay reviews the normative implications of contractual incompleteness. It reaches two conclusions: First the state can complete contracts with efficient defaults in fewer cases than is commonly supposed. Second, making specific performance routinely available for contracts that are...

Parties to lending agreements can create priority rankings in two ways: by securing a lender or by protecting the lender's debt with financial covenants. Protected debt turns into high priority debt because the early lender will permit covenant violations only if a later lender agrees to...