Optimal bankruptcy laws across different economic systems

We model fundamental differences across economic systems andpropose optimal bankruptcy laws. We show that creditor-debtorrelationships in a given economy are affected by the abilityof creditors to obtain information about fundamentals and themanagers' ability to strategically use their private information.An optimal bankruptcy law utilizes creditors' information whileminimizing managers' use of strategic information. Our proposedlaws for a developed bank-based system like Germany includea creditor chapter only, for a developed market-based systemlike the United States include both a creditor chapter and adebtor chapter, and for an underdeveloped system include botha creditor chapter and a debtor chapter that gives the managermore protection than in a market-based system.