TY  - JOUR
AU  - Froot,Kenneth A.
AU  - Scharfstein,David S.
AU  - Stein,Jeremy C.
TI  - LDC Debt: Forgiveness, Indexation, and Investment Incentives
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2541
PY  - 1990
Y2  - March 1990
UR  - http://www.nber.org/papers/w2541
L1  - http://www.nber.org/papers/w2541.pdf
N1  - Author contact info:
Kenneth A. Froot
Graduate School of Business
Harvard University
Soldiers Field
Boston, MA 02163
Tel: 617/495-6677
Fax: 617/496-7357
E-Mail: kfroot@hbs.edu

David S. Scharfstein
Harvard Business School
Baker 239
Soldiers Field
Boston, MA 02163
Tel: 617/496-5067
Fax: 617/496-8443
E-Mail: dscharfstein@hbs.edu

Jeremy C. Stein
Department of Economics
Harvard University
Littauer 209
Cambridge, MA  02138
Tel: 617/496-6455
Fax: 617/496-7352
E-Mail: jeremy_stein@harvard.edu
M2  - featured in NBER digest on 1988-05-01
AB  - We compare different indexation schemes in terms of their ability to facilitate forgiveness and reduce the investment disincentives associated with the large LDC debt overhang. Indexing to an endogenous variable (e.g., a country's output) has a negative moral hazard effect on investment, This problem does not arise when payments are linked to an exogenous variable such as commodity prices. Nonetheless, indexing payments to output may be useful when debtors know more about their willingness to invest than lenders. We also reach new conclusions about the desirability of default penalties under asymmetric information.
ER  -