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Risk Sharing with the Monarch: Contingent 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 can create important welfare gains. Nonetheless, there is almost no issuance today. Using hand-collected archival data, we examine the first known case of large-scale use of state-contingent sovereign debt in history. Philip II of Spain entered into hundreds of contracts whose value and due date depended on verifiable, exogenous events such as the arrival of silver fleets. We show that this allowed for effective risk-sharing between the king and his bankers. The data also strongly suggest that the defaults that occurred were excusable – they were simply contingencies over which Crown and bankers had not contracted previously.

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File URL: http://mauricio.econ.ubc.ca/pdfs/risk_sharing.pdf
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Bibliographic Info

Paper provided by Vancouver School of Economics in its series Economics working papers with number mauricio_drelichman-2011-14.

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Length: 44 pages
Date of creation: 04 Jul 2011
Date of revision: 06 Jun 2012
Handle: RePEc:ubc:bricol:mauricio_drelichman-2011-14

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Web page: http://www.economics.ubc.ca/

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Keywords: Sovereign Debt; Excusable Default; Rollover Crisis; Spain;

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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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