<abstract xmlns="http://www.w3.org/1999/xhtml"><p>The pursuit of <italic>ex-ante</italic> efficiency in bankruptcy law has been widely discussed in recent law and economics literature. However, the exact incentive mechanisms inducing the optimal commencement of bankruptcy proceedings have generally been exempted from the current scholarly debate. Using the law and economics tools and comparative analysis, this paper seeks to identify insolvency-specific optimal incentive mechanisms, while using the general theory on carrots and sticks in legal regulations. The paper suggests the employment of mixed-sticks-and-carrots incentive mechanisms for managers’ prompt proposals of insolvency proceedings as an optimal regulatory response. Moreover, the article provides comparative evidence that exclusive use of sticks or carrots in French, German, US, English, and Slovenian legal systems results in sub-optimal initiation of insolvency proceedings and may also induce adverse effects on prompt initiation.</p></abstract>

The pursuit of ex-ante efficiency in bankruptcy law has been widely discussed in recent law and economics literature. However, the exact incentive mechanisms inducing the optimal commencement of bankruptcy proceedings have generally been exempted from the current scholarly debate. Using the law and economics tools and comparative analysis, this paper seeks to identify insolvency-specific optimal incentive mechanisms, while using the general theory on carrots and sticks in legal regulations. The paper suggests the employment of mixed-sticks-and-carrots incentive mechanisms for managers’ prompt proposals of insolvency proceedings as an optimal regulatory response. Moreover, the article provides comparative evidence that exclusive use of sticks or carrots in French, German, US, English, and Slovenian legal systems results in sub-optimal initiation of insolvency proceedings and may also induce adverse effects on prompt initiation.

Carrots and Sticks as Incentive Mechanisms for the Optimal Initiation of Insolvency Proceedings

University of Ljubljana, Faculty of Economics, Kardeljeva ploscad 17, Ljubljana, SI – Slovenia

DANUBE

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

The pursuit of ex-ante efficiency in bankruptcy law has been widely discussed in recent law and economics literature. However, the exact incentive mechanisms...

Carrots and Sticks as Incentive Mechanisms for the Optimal Initiation of Insolvency Proceedings

Published Online: Jul 07, 2016

Page range: 79 - 103

DOI: https://doi.org/10.1515/danb-2016-0005

Keywords
Corporate Insolvency, Trigger Mechanisms, Incentives, Efficiency, Comparative Insolvency Law, Carrots and Sticks

© 2016 Jaka Cepec et al., published by De Gruyter Open

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Carrots and Sticks as Incentive Mechanisms for the Optimal Initiation of Insolvency Proceedings

Published Online: Jul 07, 2016

Page range: 79 - 103

DOI: https://doi.org/10.1515/danb-2016-0005

KeywordsCorporate Insolvency, Trigger Mechanisms, Incentives, Efficiency, Comparative Insolvency Law, Carrots and Sticks

© 2016 Jaka Cepec et al., published by De Gruyter Open

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Keywords
Corporate Insolvency, Trigger Mechanisms, Incentives, Efficiency, Comparative Insolvency Law, Carrots and Sticks