Default and Renegotiation: A Dynamic Model of Debt

Oliver Hart and John Moore

The Quarterly Journal of Economics, 1998, vol. 113, issue 1, 1-41

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 (nondebt) contracts, and derive sufficient conditions for debt to be optimal among these.

Date: 1998
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Related works:
Working Paper: Default and Renegotiation: A Dynamic Model of Debt (1997)
Working Paper: Default and Renegotiation: A Dynamic Model of Debt (1997)
Working Paper: Default and Renegotiation: A Dynamic Model of Debt (1997)
Working Paper: DEFAULT AND RENEGOTIATION: A DYNAMIC MODEL OF DEBT (1989)
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