This Article is the first comprehensive analysis of the complicated voting rules of Chapter 11. Under these rules, only the debtor may propose a plan of reorganization during a lengthy exclusivity period, creditors are placed in classes which vote separately on the plan, voting is based on a bicameral system with both majority and supermajority requirements, and a plan may be confirmed only if, among other things, every nonconsenting creditor receives at least as much as it would have if the firm were liquidated under Chapter 7. Chapter 11’s rules are idiosyncratic and difficult to understand, yet the literature on these rules is sparse. Several scholars have argued that it should be replaced with a system that avoids voting and relies on a more market-driven valuation process. To date however, no one has tried to understand how all of the voting rules fit together. In this article, Professors Kordana and Posner expand on existing bargaining models to consider bargaining with multiple creditors, paying particular attention to difficulties posed by imperfect information, and analyze all of the major voting rules in Chapter 11. The authors utilize a positive analysis to achieve an increased understanding of the existing bankruptcy system and its costs and benefits, an essential prerequisite to reform of Chapter 11.
Eric A. Posner
Why do migrants enjoy some of the rights associated with citizenship? Existing accounts typically answer this question in terms of obligation—of a duty on the part of states to confer citizenship. Moreover, scholars tend to lump together the rights conventionally associated with citizenship when they answer this question. In contrast, this Article disaggregates the rights associated with citizenship, asks what both states and migrants want, and inquires into how the suite of rights associated with citizenship might advance those interests. States want to encourage migrants to enter their territory and to make country-specific investments, but states also have an interest in being able to remove migrants or make their lives less comfortable if circumstances change. However, migrants will not enter and make country-specific investments if the state can easily remove them or change the conditions in which they live. Accordingly, the optimal “migration contract” between the state and the migrant reflects the trade-offs between commitment and flexibility. We discuss ways in which basic rights to liberty and property, political rights including voting, and other rights may embody the optimal contract in different circumstances.
Contract scholarship has given little attention to the production process for contracts. The usual assumption is that the parties will construct the contract ex nihilo, choosing all the terms so that they will maximize the surplus from the contract. In fact, parties draft most contracts by slightly modifying the terms of contracts that they have used in the past, or that other parties have used in related transactions. A small literature on boilerplate recognizes this phenomenon, but little empirical work examines the process. This Article provides an empirical analysis by drawing on a dataset of sovereign bonds. We show that exogenous factors are key determinants in the evolution of these contracts. We find an evolutionary pattern that roughly separates into three stages: stage one when a particular standard form dominates in the absence of external shocks; stage two when there are external shocks and marginal players experimenting with deviations from the standard form; and stage three when a new standard emerges. We find that more marginal law firms are likely to be leaders in innovation at early stages of the innovation cycle but that dominant law firms are leaders at later stages.