Advanced Search
MyIDEAS: Login to save this paper or follow this series

The Role Of Institutions To Solve Sovereing Debt Problems: The Spanish Monarchy´S Credit (1516-1665)

Contents:

Author Info

  • Carlos Álvarez

    ()

Abstract

The Spanish Monarchy borrowed foreign credit during more than 150 years despite repudiating its agreements from time to time.According to the extant literature on sovereign debt, lenders should not have lent any money to the Spanish Monarchy, especially because they were not organized as a cartel. Sovereign debt theory asserts that the principal constraint on sovereign behavior is the penalty that lenders or an external organization can impose on the borrower. When the sovereign decides whether to honor the loan agreement, his main consideration lies on the size of the penalty he will suffer in the event of a default. The inability to punish the sovereign does not lead to indiscriminate reneging, but to an absence of credit. Thus, the extant theory cannot explain the borrowing that took place in Castile during a large part of the Habsburg dynasty (1516-1665). This paper explains why, in the absence of penalties and having experiences of defaults, bankers kept lending. The mechanism that made this credit possible was based on expectations of the king’s revenues in any given period. Bankers did not have to punish the sovereign because the king was trying to cooperate with many lenders to reduce uncertainty about future credit and to expand the amount of money available.

Download Info

If 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.
File URL: http://docubib.uc3m.es/WORKINGPAPERS/WH/wh030804.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Universidad Carlos III, Departamento de Historia Económica e Instituciones in its series Working Papers in Economic History with number wh030804.

as in new window
Length:
Date of creation: Feb 2003
Date of revision:
Handle: RePEc:cte:whrepe:wh030804

Contact details of provider:
Postal: Campus de Getafe, C/ Madrid, 126, 28903 GETAFE (MADRID)
Phone: +34-91 624 9599
Web page: http://www.uc3m.es/uc3m/dpto/HISEC/01presentacion.html
More information through EDIRC

Related research

Keywords:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Kreps, David M., 1990. "Game Theory and Economic Modelling," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198283812, October.
  2. Greif, Avner, 1994. "Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and Individualist Societies," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 102(5), pages 912-50, October.
  3. Bulow, Jeremy & Rogoff, Kenneth S., 1989. "A Constant Recontracting Model of Sovereign Debt," Scholarly Articles 12491028, Harvard University Department of Economics.
  4. V. V. Chari & Patrick J Kehoe, 1998. "Sustainable Plans," Levine's Working Paper Archive 600, David K. Levine.
  5. Chari V. V. & Kehoe Patrick J., 1993. "Sustainable Plans and Debt," Journal of Economic Theory, Elsevier, Elsevier, vol. 61(2), pages 230-261, December.
  6. Grossman, Herschel I & Van Huyck, John B, 1988. "Sovereign Debt as a Contingent Claim: Excusable Default, Repudiation, and Reputation," American Economic Review, American Economic Association, American Economic Association, vol. 78(5), pages 1088-97, December.
  7. James Conklin, 1998. "The Theory of Sovereign Debt and Spain under Philip II," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 106(3), pages 483-513, June.
  8. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, American Economic Association, vol. 83(3), pages 525-48, June.
  9. Andrew Atkeson, 2010. "International lending with moral hazard and risk of repudiation," Levine's Working Paper Archive 200, David K. Levine.
  10. Greif, Avner & Milgrom, Paul & Weingast, Barry R, 1994. "Coordination, Commitment, and Enforcement: The Case of the Merchant Guild," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 102(4), pages 745-76, August.
  11. Douglas Bernheim, B. & Ray, Debraj, 1989. "Collective dynamic consistency in repeated games," Games and Economic Behavior, Elsevier, Elsevier, vol. 1(4), pages 295-326, December.
  12. Bulow, Jeremy & Rogoff, Kenneth, 1989. "A Constant Recontracting Model of Sovereign Debt," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(1), pages 155-78, February.
  13. Zerbe, Richard O. & Anderson, C. Leigh, 2001. "Culture And Fairness In The Development Of Institutions In The California Gold Fields," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 61(01), pages 114-143, March.
  14. Greif, Avner, 1989. "Reputation and Coalitions in Medieval Trade: Evidence on the Maghribi Traders," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 49(04), pages 857-882, December.
  15. Kreps, David M & Wilson, Robert, 1982. "Sequential Equilibria," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 863-94, July.
  16. Eaton, Jonathan & Gersovitz, Mark & Stiglitz, Joseph E., 1986. "The pure theory of country risk," European Economic Review, Elsevier, Elsevier, vol. 30(3), pages 481-513, June.
  17. Telser, L G, 1980. "A Theory of Self-enforcing Agreements," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 53(1), pages 27-44, January.
  18. Veitch, John M., 1986. "Repudiations and Confiscations by the Medieval State," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 46(01), pages 31-36, March.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Mauricio Drelichman & Joachim Voth, 2011. "Serial defaults, serial profits: Returns to sovereign lending in Habsburg Spain, 1566-1600," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 1262, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Mauricio Drelichman & Joachim Voth, 2007. "Lending to the borrower from hell: Debt and default in the age of Philip II, 1556-1598," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 1164, Department of Economics and Business, Universitat Pompeu Fabra, revised Nov 2009.
  3. Mauricio Drelichman & Hans‐Joachim Voth, 2011. "Lending to the Borrower from Hell: Debt and Default in the Age of Philip II," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 121(557), pages 1205-1227, December.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cte:whrepe:wh030804. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: () The email address of this maintainer does not seem to be valid anymore. Please ask to update the entry or send us the correct address.

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.