Optimal Property Rights in Financial Contracting

Authors/Editors

Research Areas

Publication Details

Output type: Journal article

Author list: Ayotte K, Bolton P

Publisher: Oxford University Press

Publication year: 2011

Journal: The Review of Financial Studies (0893-9454)

Volume number: 24

Issue number: 10

Start page: 3401

End page: 3433

Number of pages: 33

ISSN: 0893-9454

eISSN: 1465-7368

Languages: English-Great Britain (EN-GB)

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Unpaywall Data

Open access status: green

Full text URL: http://papers.nber.org/papers/w13316.pdf

Abstract

This article adopts a definition of property rights from legal scholarship: A property right (in contrast to a contractual right) is enforceable, not only against the parties to a contract, but also against third parties outside the contract. In a financial contracting setting, we ask: When should the law enforce a lender's contractual protections as property rights, given that these rights may be hidden and costly for other lenders to discover? Our model explains why the law limits the creation and enforceability of property rights, and develops principles of optimal enforceability. These principles are often reflected in the law.

Keywords

G32, G33, K11, K12

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