Bargaining over debt rescheduling

Jacek Prokop ()

MPRA Paper from University Library of Munich, Germany

Abstract: The objective of this paper is to investigate the bargaining over debt rescheduling between a sovereign borrower and a foreign lender in a more general framework than in the preceding literature. We propose a model in which the impact of the bargaining power of the creditor and the debtor can be analyzed in the situation of debt overhang. The concept of Nash bargaining solution is applied to predict the behaviour of international financial market’s participants. The extended framework of debt renegotiations allows to identify several possible equilibria that could serve as potential resolutions of the debt overhang problem. In an illustrative numerical example, we show that a significant level of forgiveness on the part of the lenders is indispensible in the process of bargaining over debt rescheduling. However, the actual size of the forgiveness varies with the specific distribution of the bargaining power between the debtor and the creditor.

Keywords: debt rescheduling; foreign borrowing; international debt overhang; bargaining (search for similar items in EconPapers)
JEL-codes: C78 F34 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/44315/1/MPRA_paper_44315.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:44315

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().