A Constant Recontracting Model of Sovereign Debt
AbstractFew sovereign debtors have repudiated their obligations entirely. But despite the significant sanctions at the disposal of lenders, many borrowers have been able to consistently negotiate for reduced repayments. This paper presents a model of the on-going bargaining process that determines repayment levels. We derive a bargaining equilibrium in which countries with large debts achieve negotiated partial default. The ability to credibly threaten more draconian penalties in the event of repudiation may be of no benefit to lenders. Furthermore, unanticipated increases in world interest rates may actually help the borrowers by making lenders more inpatient for a negotiated settlement. Finally, Western governments may be induced to make payments to facilitate reschedulings even though efficient agreements will be reached without their intervention.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2088.
Date of creation: Feb 1987
Date of revision:
Publication status: published as Journal of Political Economy, Vol. 95, No. 6, December 1988.
Note: ITI IFM
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Other versions of this item:
- Jeremy A.Rogoff Bulow & Kenneth, 1986. "A Constant Recontracting Model of Sovereign Debt," University of Chicago - George G. Stigler Center for Study of Economy and State 43, Chicago - Center for Study of Economy and State.
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.:
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