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Government Debt, Reputation and Creditors’ Protections: The Tale of San Giorgio

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  • Michele Fratianni

Abstract

San Giorgio (1407–1805) was a formal association aimed at protecting creditors’ rights and reducing the risk of debt repudiation by the Republic of Genoa. The behavior of this institution is broadly consistent with debt models that predict lending if lenders can impose big penalties on debtors, and models in which lenders can differentiate between excusable and inexcusable defaults. San Giorgio shareholders enjoyed low credit risk but also lower returns on capital than those prevailing on comparable foreign assets for which creditors’ protection mechanisms were lacking. The Republic’s quid pro quo was a low cost of financing. Differences in credit risk were an important explanation of differences in long-term interest rates across countries in 16th and 17th century Europe, a point not sufficiently emphasized by the literature. Copyright Oxford University Press Science+Business Media, LLC 2006

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Bibliographic Info

Article provided by European Finance Association in its journal Review of Finance.

Volume (Year): 10 (2006)
Issue (Month): 4 (December)
Pages: 487-506

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Handle: RePEc:oup:revfin:v:10:y:2006:i:4:p:487-506

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Cited by:
  1. Michele Fratianni, 2007. "The Evolutionary Chain of International Financial Centers," Working Papers 2007-14, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  2. David Chilosi, 2013. "Risky institutions: political regimes and the cost of public borrowing in early modern Italy," Economic History Working Papers 50815, London School of Economics and Political Science, Department of Economic History.
  3. Kris James Mitchener & Marc D. Weidenmier, 2005. "Supersanctions and Sovereign Debt Repayment," NBER Working Papers 11472, National Bureau of Economic Research, Inc.
  4. Mitchener, Kris James & Weidenmier, Marc D., 2010. "Supersanctions and sovereign debt repayment," Journal of International Money and Finance, Elsevier, vol. 29(1), pages 19-36, February.
  5. David Andolfatto & Aleksander Berentsen & Christopher J. Waller, 2013. "Monetary policy with asset-backed money," Working Papers 2013-030, Federal Reserve Bank of St. Louis.
  6. Roberds, William & Velde, Francois R., 2014. "Early Public Banks," Working Paper Series WP-2014-3, Federal Reserve Bank of Chicago.

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