Lending to the Borrower from Hell: Debt and Default in the Age of Philip II
AbstractPhilip II of Spain accumulated debts of over 50% of GDP. He also failed to honor them four times. We ask what allowed the sovereign to borrow much while defaulting often. Earlier work emphasized either banker irrationality or the importance of sanctions, in line with Bulow and Rogoff (1989). Using a unique dataset on 438 lending contracts derived from the archives, we show that neither interpretation is supported by the evidence. What sustained lending was the ability of bankers to cut off Philip IIÃ¢â¬â¢s access to smoothing services. Lenders contracted with the king in overlapping syndicates, effectively creating a network of bankers. We analyze the incentive structure that supported the cohesion of this bankersÃ¢â¬â¢ coalition, and examine how it survived across the biggest defaults in PhilipÃ¢â¬â¢s reign. In particular, we argue that the effectiveness of lending moratoria was sustained through a Ã¢â¬Ëcheat-the-cheaterÃ¢â¬â¢ mechanism, in the spirit of Kletzer and Wright (2000). Since the king needed to smooth his expenditure in the face of major revenue and spending shocks, the ability of bankers to cut him off from funding was sufficient to sustain cross-border lending.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Royal Economic Society in its journal The Economic Journal.
Volume (Year): 121 (2011)
Issue (Month): 557 (December)
Contact details of provider:
Postal: Office of the Secretary-General, School of Economics and Finance, University of St. Andrews, St. Andrews, Fife, KY16 9AL, UK
Phone: +44 1334 462479
Web page: http://www.res.org.uk/
More information through EDIRC
Other versions of this item:
- Drelichman, Mauricio & Voth, Hans-Joachim, 2008. "Lending to the Borrower from Hell: Debt and Default in the Age of Phillip II," Economics working papers mauricio_drelichman-2008-, Vancouver School of Economics, revised 06 Sep 2010.
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913
You can help add them by filling out this form.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:CitEc Project, subscribe to its RSS feed for this item.
- Drelichman, Mauricio & Voth, Hans-Joachim, 2011.
"Serial defaults, serial profits: Returns to sovereign lending in Habsburg Spain, 1566-1600,"
Explorations in Economic History,
Elsevier, vol. 48(1), pages 1-19, January.
- Drelichman, Mauricio & Voth, Hans-Joachim, 2010. "Serial Defaults, Serial Profits: Returns to Sovereign Lending in Habsburg Spain, 1566-1600," Economics working papers mauricio_drelichman-2010-, Vancouver School of Economics, revised 04 Jul 2011.
- Mauricio Drelichman & Joachim Voth, 2011. "Serial defaults, serial profits: Returns to sovereign lending in Habsburg Spain, 1566-1600," Economics Working Papers 1262, Department of Economics and Business, Universitat Pompeu Fabra.
- Johnson, Noel D. & Koyama, Mark, 2014. "Tax farming and the origins of state capacity in England and France," Explorations in Economic History, Elsevier, vol. 51(C), pages 1-20.
- Mark Aguiar & Manuel Amador, 2013. "Sovereign Debt: A Review," NBER Working Papers 19388, National Bureau of Economic Research, Inc.
- Vesperoni , Alberto, 2013. "War Finance and the Modern State," NEPS Working Papers 6/2013, Network of European Peace Scientists.
- Mauricio Drelichman & Hans-Joachim Voth, 2013. "Contingent Sovereign Debt Contracts: The Historical Perspective," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 11(3), pages 28-32, October.
- Rohan Pitchford & Mark L. J. Wright, 2013. "On the contribution of game theory to the study of sovereign debt and default," Oxford Review of Economic Policy, Oxford University Press, vol. 29(4), pages 649-667, WINTER.
- Peter Benczur & Cosmin Ilut, 2011. "Evidence for Dynamic Contracts in Sovereign Bank Lending," Working Papers 11-06, Duke University, Department of Economics.
- Asiento in Wikipedia (Finnish)
- Asiento in Wikipedia (English)
- Asiento in Wikipedia (Turkish)
- Economic Logic blog
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.