Reexamination on the Hypothec from the Viewpoint of Foreclosure Cost Analysis

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We developed the game-theoretical model to analyze the hypothec from the viewpoint of foreclosure cost. Our model is based on the non-cooperative bargaining model, which is known as Rubinstein Bargaining Game. Rubinstein model was refined by American Law and Economist who had analyzed the efficiency of various mortgage foreclosure systems in the 80's. To make this model more realistic, we classified the bargaining processes under existing law into three phases ; (1) the negotiation after the due date before the foreclosure claim, (2) the negotiation in the foreclosure process, (3) the negotiation after the adjudication.In the 90's, Japanese real estate finance law suffered serious changes because of the economic up and down. The traditional theory on the hypothec, which had been established as "Value right theory" in the 20's, was considerably revised or completely abandoned to catch up with the needs of the economic activities. The Supreme Count changed the case law and created the new approach in regard of almost all the important hypothec provisions of Japanese Civil Code (JCC hereafter). These judicial measures are, however, insufficient to cope with critic situation and the legislative action is desperately needed today.We , then, tried to analyze the legislative proposition about the article 395 JCC from the viewpoint of Law and Economics. According to the Coase theorem under positive transaction cost, this provision should be abolished but some remedies or compensation can be given to the short term lessee.