Modeling the Competition between Public Debt Creditors in Iran Using Bankruptcy Games

Author

Department of Economics, University of Siena, Italy; Ferdowsi University of Mashhad, Mashhad, Iran.

Abstract

The Government in Iran plays a substantial role in economy through financial interactions that have extended to various fields and many organizations. Investigation of such financial interactions in recent years indicates to a huge debt of government for 2016, estimated around 45% of GDP or two times of public budget. Given that Iran experiences tough sanctions and its oil export is restricted, many studies and experts assert that government’s income will decrease and its debt will increase even further. For creditors, this means that they are likely to face difficulties to get their money back, and must compete with each other for that. The fierce competition among the government’s creditors is quite understandable, given that the budget dedicated to pay off debts to private and public entities is only a small fraction of their demands. This paper using different asset allocation methods in bankruptcy games tries to model the creditors’ preferences and find a solution that may be consented. Results show that as social selection, Shapley Value dividing rule has the highest chance to be selected. Using this method, of the 450 thousand billion Rials in the public budget allocated to pay off public institutions and organizations (including private banks), the Social Security Organization (SSO) and government banks receive 137 thousand billion Rials (16.1% and 24.2% of their demands, respectively), private banks and credit institutions receive 127 thousand billion Rials (31%), public contractors receive 35 thousand billion Rials (26.3%), and other public entities receive 13 thousand billion Rials (28.3%) for their demands.
 

Keywords