Sovereign debt buybacks can lower bargaining costs
AbstractI develop two models in which debt repurchases by highly indebted sovereign nations are advantageous for all parties. The models are based on the idea that when sovereign debts are large, bargaining costs are large. Creditors spend more resources convincing the debtor that they are tough when they have more at stake. Also, the sanctions which are sometimes triggered when bargaining fails to produce an agreement are larger when debts are larger. For both these reasons buybacks, which reduce the face value of the outstanding debt, can be beneficial. The resulting equilibria are constrained Pareto Optima. But, donors who subsidize buybacks increase overall welfare more than donors who make direct gifts. I also argue that Bulow and Rogoff (1988)'s empirical evidence on buybacks is consistent with my models.
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 Elsevier in its journal Journal of International Money and Finance.
Volume (Year): 10 (1991)
Issue (Month): 3 (September)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/30443
Other versions of this item:
- Julio J. Rotemberg, 1988. "Sovereign Debt Buybacks Can Lower Bargaining Costs," NBER Working Papers 2767, National Bureau of Economic Research, Inc.
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Bhattacharya, S., 1991.
"Sovereign debt, creditor-country governments, and multilateral institutions,"
1991-62, Tilburg University, Center for Economic Research.
- Bhattacharya, S., 1991. "Sovereign Debt, Creditor-Country Governments, and Multilateral Institutions," Papers 9162, Tilburg - Center for Economic Research.
- Fernando Broner & Alberto Martin & Jaume Ventura, 2010.
"Sovereign Risk and Secondary Markets,"
American Economic Review,
American Economic Association, vol. 100(4), pages 1523-55, September.
- Fernando Broner & Alberto Martin & Jaume Ventura, 2006. "Sovereign risk and secondary markets," Economics Working Papers 998, Department of Economics and Business, Universitat Pompeu Fabra, revised Aug 2009.
- Fernando Broner & Alberto Martin & Jaume Ventura, 2006. "Sovereign Risk and Secondary Markets," NBER Working Papers 12783, National Bureau of Economic Research, Inc.
- Broner, Fernando A & Martin, Alberto & Ventura, Jaume, 2007. "Sovereign Risk and Secondary Markets," CEPR Discussion Papers 6055, C.E.P.R. Discussion Papers.
- Fernando Broner & Alberto Martin & Jaume Ventura, 2006. "Sovereign Risk and Secondary Markets," 2006 Meeting Papers 565, Society for Economic Dynamics.
- Fernando A. Broner & Alberto Martín & Jaume Ventura, 2006. "Sovereign Risk and Secondary Markets," Working Papers 288, Barcelona Graduate School of Economics.
- Fernando A Broner & Alberto Martin & Jaume Ventura, 2006. "Sovereign Risk and Secondary Markets," Working Papers 306, Barcelona Graduate School of Economics.
- Marchesi, S., 2000. "Buybacks of Domestic Debt in Public Debt Management," The Warwick Economics Research Paper Series (TWERPS) 573, University of Warwick, Department of Economics.
- Joshua Aizenman & Eduardo R. Borensztein, 1989. "Strategic Investment in a Debt Bargaining Framework," NBER Working Papers 3019, National Bureau of Economic Research, Inc.
- Jonathan P. Thomas, 2001. "Default Costs, Willingness to Pay and Sovereign Debt Buybacks," International Finance 0103002, EconWPA.
- Balazs Szentes & Natalia Kovrijnykh, 2005. "A Theory of Debt Overhang and Buyback," 2005 Meeting Papers 447, Society for Economic Dynamics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
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.