The Optimal Response to Default: Renegotiation or Extended Maturity?

This paper reinforces the argument of Harding and Sirmans (2002) that the observed preference of lenders for extended maturity rather than renegotiation of the principle in the case of loan default is due to the superior incentive properties of the former. Specifically, borrowers have a greater incentive to avoid default under extended maturity because it reduces the likelihood that they will be able to escape paying off the full loan balance. Thus, although extended maturity leaves open the possibility of foreclosure, it will be preferred to renegotiation as long as the dead weight loss from foreclosure is not too large.

Institutional Infrastructure to Support 'Super Growth' in Kenya: Governance Thresholds, Reversion Rates and Economic Development

Kenya Growth Vision 2030 proposes policy and institutional reforms that make it possible for the country to achieve development status of a middle income country by 2030. This paper outlines the institutional framework necessary to achieve ÈSuper Growth,É which describes the character of growth required to meet targets stipulated in the Vision. The paper provides evidence confirming the importance of improving the quality of governance to the achievement of the Vision. The paper also demonstrates that the country is characterized by a high probability of reverting to poor governance. It is argued that, to achieve super growth, the country must attain an institutional tipping point which associates with low reversion rates to weaker institutions. The paper provides suggestions for institutional reforms that result in the achievement of an institutional tipping point and super growth.