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 Download reference. The following formats are available: HTML,
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Jonathan Eaton & Raquel Fernandez, 1995.
"Sovereign Debt,"
NBER Working Papers
5131, National Bureau of Economic Research, Inc.
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Other versions:
Eaton, J. & Fernandez, R., 1995.
"Sovereign Debt,"
Papers
37, Boston University - Department of Economics.
Eaton, Jonathan & Fernandez, Raquel, 1995.
"Sovereign debt,"
Handbook of International Economics,
in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 3, pages 2031-2077
Elsevier.
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