Modeling the Competition between Public Debt Creditors in Iran: An Application of Bankruptcy Games

Author

Department of Public Affairs, Faculty of Economics, Kharazmi University, Tehran, Iran

10.22059/ier.2022.86967

Abstract

The Government in Iran plays a substantial role in the economy through financial interactions extended to various fields and many organizations. In recent years, investigation of such economic interactions indicates a considerable government debt for 2016, estimated at 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 the 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. The budget dedicated to paying off debts to private and public entities is only a tiny fraction of their demands. This paper tries to model the creditors' preferences using different asset allocation methods in bankruptcy games and finds a solution that may be consented. Results show that the Shapley Value dividing rule has the highest chance to be selected as social selection. 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%). Other public entities receive 13 thousand billion Rials (28.3%) for their demands.
 

Keywords