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NBER Working Papers and Publications
|August 2007||Optimal Property Rights in Financial Contracting|
with Patrick Bolton: w13316
In this paper we propose a theory of optimal property rights in a financial contracting setting. Following recent contributions in the property law literature, we emphasize the distinction between contractual rights, that are only enforceable against the parties themselves, and property rights, that are also enforeceable against third parties outside the contract. Our analysis starts with the following question: which contractual agreements should the law allow parties to enforce as property rights? Our proposed answer to this question is shaped by the overall objective of minimizing due diligence (reading) costs and investment distortions that follow from the inability of third-party lenders to costlessly observe pre-existing rights in a borrower's property. Borrowers cannot reduce these ...
Published: Kenneth Ayotte & Patrick Bolton, 2011. "Optimal Property Rights in Financial Contracting," Review of Financial Studies, Society for Financial Studies, vol. 24(10), pages 3401-3433. citation courtesy of