Debt Write-Downs and Debt-Equity Swaps in the Two Sector Model

Linda Goldberg and Mark Spiegel

No 3121, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: "Debt overhang" models have motivated the possibility of Pareto-improving "market-based debt-reduction schemes" under an assumption of creditor seizure in bad states. These models usually reach the conclusion that while pure debt forgiveness is in the interest of debtor nations, debt repurchase programs are not. This paper introduces a "safe sector" into the debtor nation which is unexposed to seizure during default states. Two important results which emerge are that debt forgiveness is not necessarily in the interest of all debtors, and the potential for Pareto-improving debt-equity swaps is magnified.

Date: 1989-09
Note: ITI IFM
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Published as Journal of International Economics, vol. 33, (November 1992), p. 267-283

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Related works:
Journal Article: Debt write-downs and debt--equity swaps in a two-sector model (1992)
Working Paper: DEBT WRITE-DOWNS AND DEBT-EQUITY SWAPS IN A TWO SECTOR MODEL (1989)
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