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Article
Optimal Trust Design in Mass Tort Bankruptcies
Faculty Scholarship Series
  • Kenneth Ayotte, Columbia Business School
  • Yair Listokin, Yale Law School
Document Type
Article
Comments
Optimal Trust Design in Mass Tort Bankruptcies, 7 AM. L. & ECON. REV. 403 (2005)
Abstract

Many 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 Version
1-1-2005
Citation Information
Kenneth Ayotte and Yair Listokin. "Optimal Trust Design in Mass Tort Bankruptcies" (2005)
Available at: http://works.bepress.com/kenneth_ayotte/8/