Can the international financial system be reformed to reduce the costs of sovereign defaults? What would the consequences of such ex post reforms be on the ex ante level of sovereign borrowing? This paper presents a simple model in which sovereign debt restructuring negotiations are plagued by limited commitment issues that lead to a holdout problem. Delay in bargaining produces costs ex post that may improve repayment incentives ex ante. The optimal level of holdout is derived, and the framework is used to evaluate a number of existing policy proposals
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Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number
331.
Length: Date of creation: 03 Dec 2006 Date of revision: Handle: RePEc:red:sed006:331
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Find related papers by JEL classification: F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements F34 - International Economics - - International Finance - - - International Lending and Debt Problems