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Risk Sharing with the Monarch: Contigent Debt and Excusable Defaults in the Age of Philip II, 1556-1598

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  • Drelichman, Mauricio
  • Voth, Hans-Joachim

Abstract

Contingent sovereign debt has the potential to create important welfare gains--but actual issuance is rare. Using hand-collected archival data, we examine the first known case of large-scale issuance of contingent sovereign debt in history. Philip II of Spain entered into hundreds of contracts whose value and due date was contingent upon verifiable, exogenous events such as the arrival of silver fleets. This allowed for effective risk-sharing between the king and his bankers. The defaults that occurred were excusable, occurred in bad states of the world, and under conditions that could not be foreseen or contracted on ex ante.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8492.

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Date of creation: Jul 2011
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Handle: RePEc:cpr:ceprdp:8492

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Keywords: Contingent debt; emerging debt markets; excusable default; Philip II; Sovereign debt;

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Cited by:
  1. Irigoin, A & Grafe, R, 2012. "Bounded Leviathan: or why North & Weingast are only right on the right half," MPRA Paper 39722, University Library of Munich, Germany.
  2. Maria Alejandra Irigoin & Regina Grafe, 2012. "Bounded Leviathan: or why North and Weingast are only right on the right half," Economic History Working Papers 44492, London School of Economics and Political Science, Department of Economic History.

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