Commentary on “On the Nature of Bankruptcy”: Bankruptcy and Bargaining

At a conference on bargaining, it should not be surprising that there is more than one perspective on the relationship between bankruptcy and bargaining. Dean Jackson and Professor Scott\u27s article emphasizes a hypothetical bargain to be struck by idealized participants in a firm. It explores the relationship between bankruptcy and that bargain. By imagining what that bargain would look like, Jackson and Scott construct new justifications for bankruptcy law\u27s distributional rules. Such a theory, however, is subject to reservations about the depth of insight that can be gained from examination of purely theoretical bargains. Stripped of real-world characteristics, hypothetical bargains struck by hypothetical actors cannot hope to capture the full range of human interaction. Nevertheless, Jackson and Scott\u27s discussion is valuable because it provides a fresh outlook on difficult questions of bankruptcy theory. But another equally fruitful relationship between bankruptcy and bargaining exists. This relationship is not between bankruptcy and the hypothetical bargain to which creditors might agree ex ante; rather, it is between bankruptcy and the real-world bargaining that attends most commercial disputes. As this relationship has not been examined extensively, I wish to introduce it here. After analyzing the relationship between bankruptcy and real-world bargaining, this Comment offers a limited critique of Jackson and Scott\u27s theory