Default and Renegotiation: A Dynamic Model of Debt

Posted: 7 Mar 1997

See all articles by Oliver Hart

Oliver Hart

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

John Moore

University of Edinburgh - Economics; London School of Economics

Multiple version iconThere are 2 versions of this paper

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

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

Oliver D. Hart (Contact Author)

Harvard University - Department of Economics ( email )

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John Hardman Moore

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