It is generally understood that the way to discourage particular behavior in individuals is to punish that behavior, on the theory that rational individuals seek to avoid punishment. Laws aimed at deterring behavior operate on the assumption that increasing the likelihood of punishment, the severity of punishment, or both, will decrease the behavior. The success of these laws is evaluated by how much the targeted behavior decreases. The law of preferential transfers—which punishes creditors who have been paid prior to a bankruptcy filing at the expense of other, unpaid creditors—has been defended on the grounds that it deters a race to collect from a struggling debtor. However, deterrence theory suggests that the low likelihood of punishment and the cap on punishment associated with preference law make it a very poor deterrence. Further, empirical evidence drawn from interviews with affected creditors, debtors, and attorneys demonstrates that in practice preference law does little or nothing to deter targeted behavior and, in the process, imposes significant costs. The weaknesses of preference law call for its significant revision, to place a greater focus on specific categories of creditors to be punished on account of their pre-bankruptcy activities.
© 2018 Brigham Young University Law Review
Optimal Deterrence and the Preference Gap,
2018 BYU L. Rev.
Available at: https://digitalcommons.law.byu.edu/lawreview/vol2018/iss3/5