Debt restructuring with Multiple Creditors: A Public Good Approach

Detragiache, Enrica ; Garella, Paolo G. (1993) Debt restructuring with Multiple Creditors: A Public Good Approach. Bologna: Dipartimento di Scienze economiche DSE, p. 31. DOI 10.6092/unibo/amsacta/5189. In: Quaderni - Working Paper DSE (168). ISSN 2282-6483.
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Abstract

This paper studies the restructuring of non-marketable debt, when the number of creditors is arbitrary, and there is asymmetric information. With multiple creditors, debt forgiveness has the character of a public good. As for the case of private provision of a public good, mechanism design methods allow to shows that debt restructuring is not generally ex-post efficient (liquidation occurs too often). We also derive an indirect mechanism, in which equity offers to exchange old debt for new claims of lowerface value, and creditors choose how much to tender. This mechanism can replicate the optimal restructuring scherme. Finally by means of an example we study repeated offers, and we show that an initial failure reveals information that discourages free-riding, and efficienty improves.

Abstract
Document type
Monograph (Working Paper)
Creators
CreatorsAffiliationORCID
Detragiache, Enrica
Garella, Paolo G.
Subjects
ISSN
2282-6483
DOI
Deposit date
10 Jun 2016 09:28
Last modified
10 Jun 2016 09:28
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