2005-14 The role of path dependence in the development of U.S. bankruptcy law, 1880-1938

This paper provides an illustration of the mechanisms that can give rise to path dependence in legislation. Specifically it shows how debtor-friendly bankruptcy law arose in the United States as a result of a path dependent process. The 1898 Bankruptcy Act was not regarded as debtor-friendly at the time of its enactment, but the enactment of the law gave rise to changes in interest groups, beliefs about the purpose of bankruptcy law, and political party positions on bankruptcy that set the United States on a path to debtor-friendly bankruptcy law. Analysis of the path dependence of bankruptcy law produces an interpretation that is more consistent with the evidence than the standard interpretation that debtor-friendly bankruptcy law was the result of a political compromise in 1898.