Optimal Trust Design in Mass Tort BankruptciesFaculty Scholarship Series
CommentsOptimal Trust Design in Mass Tort Bankruptcies, 7 AM. L. & ECON. REV. 403 (2005)
AbstractMany firms have filed for bankruptcy to manage mass tort liabilities, most notably asbestos producers. We model a bankruptchy procedure that optimally balances the liquidity needs of present claimants and an uncertain number of future claimants. We find that future claimants should receive greater awards in expectation than present claimants as compensation for bearing greater future claims risk. We also find that allocating more value to contractual creditors in bankruptcy makes an earlier filing more likely, which may increase overall welfare. Optimal risk-sharing implies that creditors should receive equity in a trust fund, with tort claimants receiving senior debtlike securities.
Date of Authorship for this Version1-1-2005
Citation InformationKenneth Ayotte and Yair Listokin. "Optimal Trust Design in Mass Tort Bankruptcies" (2005)
Available at: http://works.bepress.com/kenneth_ayotte/8/