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Pooling sovereign risks: The case of environmental treaties and international debt

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  • Mohr, Ernst
  • Thomas, Jonathan P.

Abstract

A model is analysed in which a sovereign country has independent obligations to repay a creditor bank and to keep an environmental treaty. It is shown that the linkage of both obligations through a cross-default contract may reduce the sovereign risk attached to both the debt and the environmental contracts. Moreover, such a linkage will create an incentive for the sovereign and the bank to engage in a debt-for-natureswap, the anticipation of which increases the initial incentive for a cross-default contract to be entered into.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 55 (1998)
Issue (Month): 1 (February)
Pages: 173-190

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Handle: RePEc:eee:deveco:v:55:y:1998:i:1:p:173-190

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Web page: http://www.elsevier.com/locate/devec

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  1. B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring.
  2. Henk Folmer & Pierre Mouche & Shannon Ragland, 1993. "Interconnected games and international environmental problems," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 3(4), pages 313-335, August.
  3. Harold L. Cole & Patrick J. Kehoe, 1991. "Reputation with multiple relationships: reviving reputation models of debt," Staff Report 137, Federal Reserve Bank of Minneapolis.
  4. Black, Jane & Levi, Maurice D & de Meza, David, 1993. "Creating a Good Atmosphere: Minimum Participation for Tackling the 'Greenhouse Effect.'," Economica, London School of Economics and Political Science, vol. 60(239), pages 281-93, August.
  5. CHANDER, Parkash & TULKENS, Henry, . "Theoretical foundations of negotiations and cost sharing in transfrontier pollution problems," CORE Discussion Papers RP -983, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Jeremy A.Rogoff Bulow & Kenneth, 1986. "A Constant Recontracting Model of Sovereign Debt," University of Chicago - George G. Stigler Center for Study of Economy and State 43, Chicago - Center for Study of Economy and State.
  7. Bulow, Jeremy & Rogoff, Kenneth S., 1989. "A Constant Recontracting Model of Sovereign Debt," Scholarly Articles 12491028, Harvard University Department of Economics.
  8. Aizenman, Joshua, 1989. "Country Risk, Incomplete Information and Taxes on International Borrowing," Economic Journal, Royal Economic Society, vol. 99(394), pages 147-61, March.
  9. Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Wiley Blackwell, vol. 48(2), pages 289-309, April.
  10. Mohr, Ernst, 1995. "International Environmental Permit Trade and Debt: The Consequences of Country Sovereignty and Cross-Default Policies," Review of International Economics, Wiley Blackwell, vol. 3(1), pages 1-19, February.
  11. Hansen, Stein, 1989. "Debt for nature swaps -- Overview and discussion of key issues," Ecological Economics, Elsevier, vol. 1(1), pages 77-93, February.
  12. Kletzer, Kenneth M, 1984. "Asymmetries of Information and LDC Borrowing with Sovereign Risk," Economic Journal, Royal Economic Society, vol. 94(374), pages 287-307, June.
  13. Krugman, Paul, 1988. "Financing vs. forgiving a debt overhang," Journal of Development Economics, Elsevier, vol. 29(3), pages 253-268, November.
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Cited by:
  1. Buchner, Barbara & Carraro, Carlo & Cersosimo, Igor & Marchiori, Carmen, 2002. "Back to Kyoto? US Participation and the Linkage Between R&D and Climate Cooperation," CEPR Discussion Papers 3299, C.E.P.R. Discussion Papers.
  2. Stähler, Frank, 1993. "On international compensations for environmental stocks," Kiel Working Papers 580, Kiel Institute for the World Economy.
  3. Michèle Breton & Lucia Sbragia & Georges Zaccour, 2010. "A Dynamic Model for International Environmental Agreements," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 45(1), pages 25-48, January.
  4. Josef Janssen, 1999. "(Self-) Enforcement of Joint Implementation and Clean Development Mechanism Contracts," Working Papers 1999.14, Fondazione Eni Enrico Mattei.
  5. Heister, Johannes & Stähler, Frank, 1994. "Globale Umweltpolitik und joint implementation: Eine ökonomische Analyse für die Volksrepublik China," Kiel Working Papers 644, Kiel Institute for the World Economy.

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