When consumers carry multiple debts, how do they decide which debt to repay first? Normatively, consumers should repay the debt with the highest interest rate most quickly. However, because people tend to break complicated tasks into more manageable parts, and because losses are most distressing when segregated, the authors hypothesize that people will pay off the smallest loan first to reduce ...

This paper reviews the lessons learned from the application of the tools of game theory to the theoretical study of sovereign debt and default. We focus on two main questions. First, we review answers to the most fundamental question in the theory of sovereign debt: given that there is no supranational institution for enforcing the repayment of debts, why do countries ever repay their debts? Se...

Bank privatization and tighter credit enforcement are believed indispensable to facilitate the Eastern European transition process. We analyze lending by value-maximizing banks, the only source of capital in the transition, faced by non-performing loans to the state-owned sector. We show that banks have a perverse incentive to fund former debtors, although less efficient and more risky, because...

Since 1960s and the following financial crisis in developing countries, a wide research has been conducted on financial capability of states in repayment of their debts. Though having been considered at various importance levels during the past decades, this subject seems to have today become a controversial issue in economic discourses. In principle, three indices are applied to determine the ...

since 1960s and the following financial crisis in developing countries, a wide research has been conducted on financial capability of states in repayment of their debts. though having been considered at various importance levels during the past decades, this subject seems to have today become a controversial issue in economic discourses. in principle, three indices are applied to determine the ...

Effective management of the company's receivables allows to optimize usage resources, in particular, cash flows. stimulates attracting new customers, supporting business processes as well avoiding formation overdue debts and reducing risk insolvency, which will ensure financial stability company’s competitiveness. At same time increasing repayment period causes debt growth, can lead shortage ca...

Why do countries repay their debts? If countries in default have sufficient opportunities to save, Bulow and Rogoff [6] have shown that the answer cannot stem from a country’s desire to preserve a reputation for repayment. As a result, researchers have explained the existence of sovereign debt by either placing restrictions on the deposit contracts banks can offer, or by looking outside the cre...

B usiness failure typically occurs when a financially weak firm can no longer pay its creditors. Failure generally involves a series of steps. First, the firm suffers losses. Second, when the firm’s creditors learn of the losses, they increase their estimate of the firm’s probability of default. To compensate themselves for this increased risk, creditors demand higher interest rates or require ...