Revisiting Institutionalist Law and Economics - The Inadequacy of the Chicago School: The Case of Personal Bankruptcy Law
From an evolutionary perspective, bankruptcies may be seen as an important selection mechanism. Bankruptcy, however, has not received much attention in the economics literature. AI> the quotation from Smith, above, intimates, bankruptcy is an unpleasant process for individuals, their families and for wider society. Bankruptcy laws differ widely across countries and even within a federalized country such as the United States. Filing practices within a country also differ substantially across regions as well as among social groups (Fay, Hurst, and White 2002). Thus, bankruptcy is not the uncomplicated selection mechanism in the economic realm it sometimes is believed to be. This paper discusses how one may evaluate bankruptcy regimes from an economic perspective. It contrasts the instrumental rationality approach of the Chicago {law and economics) school with the instrumental valuation principle (IVP) from original Institutional Economics (OlE) in the context of personal bankruptcy.