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Repudiation and Renegotiation: The Case of Sovereign Debt

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Author Info
Gale, Douglas
Hellwig, Martin

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Abstract

A model of sovereign debt is analyzed. In this model, renegotiation arises in a natural way. Because information is incomplete, the renegotiation game has many equilibria. The standard contract theory approach suggests that the parties should agree to choose the efficient equilibrium strategies when the contract is written. Refinements of the equilibrium notion, such as strategic stability, suggest that a very inefficient equilibrium may be chosen. The tension between these two approaches raises deep questions about the correct way to analyze a large class of contracting problems. Copyright 1989 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 30 (1989)
Issue (Month): 1 (February)
Pages: 3-31
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Handle: RePEc:ier:iecrev:v:30:y:1989:i:1:p:3-31

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  1. Kenneth M. Kletzer & Brian D. Wright, 2000. "Sovereign Debt as Intertemporal Barter," American Economic Review, American Economic Association, vol. 90(3), pages 621-639, June. [Downloadable!] (restricted)
    Other versions:
  2. Nicolas Boccard, 2001. "Financing Start-ups: Advising vs. Competing," CSEF Working Papers 64, Centre for Studies in Economics and Finance (CSEF), University of Salerno, Italy. [Downloadable!]
  3. Richard Scheelings, 2005. "Essays in Law and Economics," Levine's Working Paper Archive 618897000000000950, UCLA Department of Economics. [Downloadable!]
  4. M. Martin Boyer, 2001. "Project Financing when the Principal Cannot Commit," CIRANO Working Papers 2001s-29, CIRANO. [Downloadable!]
  5. M. Martin Boyer, 2004. "On the Use of Hierarchies to Complete Contracts when Players Have Limited Abilities," CIRANO Working Papers 2004s-41, CIRANO. [Downloadable!]
  6. Schmitz, Patrick W., 2006. "Optimal Selling Strategies When Buyers May Have Hard Information," CEPR Discussion Papers 5747, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. Andrew Winton, 1996. "Monitored finance, liquidity, and institutional investment choice," Working Paper 9616, Federal Reserve Bank of Cleveland. [Downloadable!]
  8. Hvide, Hans K., 2005. "Optimal contracts under imperfect enforcement revisited," Discussion Papers 2005/4, Department of Finance and Management Science, Norwegian School of Economics and Business Administration. [Downloadable!]
  9. Andrew K. Rose & Mark M. Spiegel, 2008. "Non-Economic Engagement and International Exchange: The Case of Environmental Treaties," NBER Working Papers 13988, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Hans K. Hvide & Todd Kaplan, 2003. "A Theory of Capital Structure with Strategic Defaults and Priority Violations," Microeconomics 0311001, EconWPA. [Downloadable!]
    Other versions:
  11. Jonathan Eaton & Raquel Fernandez, 1995. "Sovereign Debt," NBER Working Papers 5131, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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