Comparing Menu Items: Methodological Considerations and Policy Issues

Editor(s):
Peter Wickham, Jacob Frenkel, and Michael Dooley
Published Date:
March 1989
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    Author(s)
    MICHAEL P. DOOLEY and STEVEN A. SYMANSKY* 

    It is argued that interest payments and debt buy-backs can be viewed as alternative forms of debt reduction. It follows that the division of available resources between debt reduction and interest payments can be interpreted as a renegotiation of the original contracts. Once the terms of this renegotiation are fully incorporated into market prices, a simple procedure for valuing new money and other menu items is presented. A simulation model illustrates the results of buy-backs under alternative assumptions about expectations of creditors.

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