We analyze noncontractible investments in a model with shading. A seller can make an investment that affects a buyer’s value. The parties have outside options that depend on asset ownership. When shading is not possible and there is no contract renegotiation, an optimum can be achieved by...

Insolvency practitioners from 88 countries describe how debt enforcement will proceed against an identical hotel about to default on its debt. We use the data on time, cost, and the likely disposition of the assets (preservation as a going concern vs. piecemeal sale) to construct a measure of...

We develop a model of hierarchies based on the allocation of authority. A firm's owners have ultimate authority over a firm's decisions, but they have limited time or capacity to exercise this authority. Hence owners must delegate authority to subordinates. However, these subordinates also have...

In the last few years, a new area has emerged in economic theory, which goes under the heading of 'incomplete contracting'. However, almost since its inception, the theory has been under attack for its lack of rigorous foundations. In this paper we evaluate some of the criticisms that have been...

We view a contract as a list of outcomes. Ex ante, the parties commit not to consider outcomes not on the list, i.e., these are "ruled out". Ex post, they freely bargain over outcomes on the list, i.e., the contract specifies no mechanism to structure their choice; in this sense outcomes on the...

We propose a new bankruptcy procedure. Initially, a firm's debts are cancelled, and cash and non-cash bids are solicited for the "new" (all-equity) firm. Former claimants are given shares, or options to buy shares, in the new firm on the basis of absolute priority. Options are exercised once the...

The paper compares co-operative governance structure to outside ownership. The distinction between the two lies in who has residual rights of control. It is found that a co-operative becomes relatively less efficient as the environment becomes more competitive, and the interests of members...

Consider an entrepreneur whocneeds to raise funds from an investor, but cannot commit not to withdraw his human capital from the project. The possibility of a default or quit puts an upper bound on the total indebtedness from the entrepreneur to the investor at any date. We characterize the...

We propose a new bankruptcy procedure that makes use of multiple auctions. The procedure is designed to work even when capital markets do not function well (for example, in developing economies, or in economies in transition) - although it can be used in all economies.