Default and Renegotiation: A Dynamic Model of Debt
58 Pages Posted: 7 Aug 2000 Last revised: 24 Aug 2022
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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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Date Written: January 1997
Abstract
We analyze 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.
Suggested Citation: Suggested Citation
Hart, Oliver D. and Moore, John Hardman, Default and Renegotiation: A Dynamic Model of Debt (January 1997). NBER Working Paper No. w5907, Available at SSRN: https://ssrn.com/abstract=225689
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