Bankruptcy problems with reference-dependent preferences

I study bankruptcy problems under the assumption that claimants have reference-dependent preferences. I consider different specifications for claimants’ reference points and show how perceived gains and losses impact on aggregate welfare. I can thus rank the four most prominent rules (Proportional, Constrained Equal Awards, Constrained Equal Losses, and Talmud) on the basis of the level of utilitarian and maxmin welfare that they generate. I also identify the welfare-maximizing rules and discuss their properties.