The process of debt-rescheduling between a creditor and a sovereign (LDC) debtor is modeled as a noncooperative game built on a one-sector growth model. The creditor's threat to impose default penalties is ignored here as inherently incredible; instead, the debtor's motivation for repayment is to reap benefits from attaining an improved credit standing in international capital markets. The creditor can forgive portions of the outstanding debt so that a real-time bargaining process results with concessions being in the form of debt-service payments by the debtor and debt forgiveness by the creditor. Subgame-perfect equilibria of the game are characterized the main finding is that these all result in Pareto optima in which the creditor extracts all the surplus.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
2597.
Length: Date of creation: Jun 1988 Date of revision: Publication status: published as "Strategic Models of Sovereign-Debt Negotiations," Review of Economic Studies, Vol. 57, pp. 331-349, (1990). Handle: RePEc:nbr:nberwo:2597
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Cited by: (explanations, 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.)
Jonathan Eaton & Raquel Fernandez, 1995.
"Sovereign Debt,"
NBER Working Papers
5131, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
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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