Most of the existing bankruptcy laws distort managerial incentives. The aim of this paper is to test whether the “restricted auction” mechanism proposed by Berkovitch, Israel and Zender (1997) is an optimal bankruptcy law, that is a commitment device that implements both ex ante and ex post efficiency in firm-specific investment decisions when moral hazard is binding. In order to do that, we ran a computerized experiment on a sample of 125 undergraduate students at LUISS Guido Carli University of Rome. We concluded that on average the restricted auction mechanism was able to direct more effort toward entrepreneurial activities than any unrestricted auction mechanism.
Bankruptcy Laws: Optimal Incentives to Entrepreneurs
SPALLONE, Marco
2004-01-01
Abstract
Most of the existing bankruptcy laws distort managerial incentives. The aim of this paper is to test whether the “restricted auction” mechanism proposed by Berkovitch, Israel and Zender (1997) is an optimal bankruptcy law, that is a commitment device that implements both ex ante and ex post efficiency in firm-specific investment decisions when moral hazard is binding. In order to do that, we ran a computerized experiment on a sample of 125 undergraduate students at LUISS Guido Carli University of Rome. We concluded that on average the restricted auction mechanism was able to direct more effort toward entrepreneurial activities than any unrestricted auction mechanism.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
