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Risk sharing with the monarch: contingent debt and excusable defaults in the age of Philip II, 1556–1598

Listed author(s):
  • Mauricio Drelichman

    ()

    (Vancouver School of Economics, The University of British Columbia, 997-1873 East Mall, Vancouver, V6T 1Z1, BC, Canada & The Canadian Institute for Advanced Research, 180 Dundas St. West, Suite 1400, Toronto, M5G 1Z8, ON, Canada)

  • Hans-Joachim Voth

    (University of Zurich, Zurich, Switzerland & UBS Center for Economics in Society, Zurich, Switzerland)

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 existence of state-contingent debt also sheds light on the nature of defaults—they were simply contingencies over which Crown and bankers had not contracted previously.

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File URL: http://dx.doi.org/10.1007/s11698-014-0108-8
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Article provided by Association Française de Cliométrie (AFC) in its journal Cliometrica, Journal of Historical Economics and Econometric History.

Volume (Year): 9 (2015)
Issue (Month): 1 (January)
Pages: 49-75

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Handle: RePEc:afc:cliome:v:9:y:2015:i:1:p:49-75
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