A new approach for bounding awards in bankruptcy problems

Abstract

The solution for the contested garment problem, proposed in the Babylonic Talmud, suggests that each agent should receive at least some part of the resources whenever the claim exceeds the available amount. In this context, we propose a new method to define lower bounds on awards, an idea that has underlied the theoretical analysis of bankruptcy problems from its beginning (O’Neill, Math Soc Sci 2:345–371, 1982) to present day (Dominguez and Thomson, Econ Theory 28:283–307, 2006). Specifically, starting from the fact that a society establishes its own set of commonly accepted equity principles, our proposal ensures to each agent the smallest amount she gets according to all the admissible rules. We analyze its recursive application for different sets of equity principles.