Journal Article

Optimal Property Rights in Financial Contracting

Kenneth Ayotte and Patrick Bolton

in The Review of Financial Studies

Published on behalf of The Society for Financial Studies

Volume 24, issue 10, pages 3401-3433
Published in print October 2011 | ISSN: 0893-9454
Published online August 2011 | e-ISSN: 1465-7368 | DOI: http://dx.doi.org/10.1093/rfs/hhr053
Optimal Property Rights in Financial Contracting

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  • Property Law
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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: K11; K12; G32; G33

Journal Article.  16338 words.  Illustrated.

Subjects: Property Law ; Contract Law ; Corporate Governance ; Bankruptcy

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