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Odious Debt

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  • Seema Jayachandran
  • Michael Kremer

Abstract

Trade sanctions are often criticized as ineffective because they create incentives for evasion or as harmful to the target country's population. Loan sanctions, in contrast, could be self-enforcing and could protect the population from being saddled with "odious debt" run up by looting or repressive dictators. Governments could impose loan sanctions by instituting legal changes that prevent seizure of countries' assets for nonrepayment of debt incurred after sanctions were imposed. This would reduce creditors' incentives to lend to sanctioned regimes. Restricting sanctions to cover only loans made after the sanction was imposed would help avoid time-consistency problems.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/000282806776157696
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 96 (2006)
Issue (Month): 1 (March)
Pages: 82-92

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Handle: RePEc:aea:aecrev:v:96:y:2006:i:1:p:82-92

Note: DOI: 10.1257/000282806776157696
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  1. Bulow, J. & Rogoff, K., 1988. "Sovereign Debt: Is To Forgive To Forget?," Papers 411, Stockholm - International Economic Studies.
  2. Harold L. Cole & Patrick J. Kehoe, 1996. "Reputation spillover across relationships: reviving reputation models of debt," Staff Report 209, Federal Reserve Bank of Minneapolis.
  3. Eaton, J. & Fernandez, R., 1995. "Sovereign Debt," Papers 37, Boston University - Department of Economics.
  4. Seema Jayachandran, 2004. "Odious Debt," UCLA Economics Online Papers 298, UCLA Department of Economics.
  5. Geoffrey Brennan & Giuseppe Eusepi, 2002. "The Dubious Ethics of Debt Default," Public Finance Review, , vol. 30(6), pages 546-561, November.
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