Default and Renegotiation: A Dynamic Model of Debt
Posted: 7 Mar 1997
There are 2 versions of this paper
Default and Renegotiation: A Dynamic Model of Debt
NBER Working Paper No. w5907
Number of pages: 58
Posted: 07 Aug 2000
Last Revised: 24 Aug 2022
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128
Date Written: January 1997
Abstract
We analyse the role of debt in persuading an entrepreneur to pay out cash flows, rather than to divert them. In the first part of the paper we study the optimal debt contract--specifically, the trade-off between the size of the loan and the repayment--under the assumption that some debt contract is optimal. In the second part we consider a more general class of (non-debt) contracts, and derive sufficient conditions for debt to be optimal among these.
JEL Classification: D21, G32, G33
Suggested Citation: Suggested Citation
Hart, Oliver D. and Moore, John Hardman, Default and Renegotiation: A Dynamic Model of Debt (January 1997). Available at SSRN: https://ssrn.com/abstract=5168
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