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Structuring and Restructuring Sovereign Debt: The Role of Seniority -super-1

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  • Patrick Bolton
  • Olivier Jeanne

Abstract

We show how the willingness-to-pay problem and lack of exclusivity in sovereign lending may result in an equilibrium sovereign debt structure that is excessively difficult to restructure. A bankruptcy regime for sovereigns can alleviate this inefficiency but only if it is endowed with far-reaching powers to enforce seniority and subordination clauses in debt contracts. A bankruptcy regime that makes sovereign debt easier to restructure without enforcing seniority may decrease welfare. Copyright , Wiley-Blackwell.

Suggested Citation

  • Patrick Bolton & Olivier Jeanne, 2009. "Structuring and Restructuring Sovereign Debt: The Role of Seniority -super-1," Review of Economic Studies, Oxford University Press, vol. 76(3), pages 879-902.
  • Handle: RePEc:oup:restud:v:76:y:2009:i:3:p:879-902
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    File URL: http://hdl.handle.net/10.1111/j.1467-937X.2009.00541.x
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    References listed on IDEAS

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    Cited by:

    1. Mauricio Drelichman & Hans-Joachim Voth, 2015. "Risk sharing with the monarch: contingent debt and excusable defaults in the age of Philip II, 1556–1598," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 9(1), pages 49-75, January.
    2. Fernández, Raquel & Martin, Alberto, 2014. "The Long and the Short of It: Sovereign Debt Crises and Debt Maturity," CEPR Discussion Papers 10322, C.E.P.R. Discussion Papers.
    3. Yue, Vivian Z., 2010. "Sovereign default and debt renegotiation," Journal of International Economics, Elsevier, vol. 80(2), pages 176-187, March.
    4. Safronov, M., 2016. "Experimentation and Learning-by-Doing," Cambridge Working Papers in Economics 1667, Faculty of Economics, University of Cambridge.
    5. Juan Carlos Hatchondo & Leonardo Martinez & César Sosa-Padilla, 2016. "Debt Dilution and Sovereign Default Risk," Journal of Political Economy, University of Chicago Press, vol. 124(5), pages 1383-1422.
    6. Sven Steinkamp & Frank Westermann, 2017. "Multilateral Loans and Interest Rates: Further Evidence on the Seniority Conundrum," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 22(2), pages 169-178, April.
    7. Sven Steinkamp & Frank Westermann, 2012. "On Creditor Seniority and Sovereign Bond Prices in Europe," Working Papers 92, Institute of Empirical Economic Research, Osnabrueck University, revised 25 Jul 2017.
    8. Patrick Bolton & Olivier Jeanne, 2011. "Sovereign Default Risk and Bank Fragility in Financially Integrated Economies," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 59(2), pages 162-194, June.
    9. Christoph Trebesch & Michael G. Papaioannou & Udaibir S Das, 2012. "Sovereign Debt Restructurings 1950-2010; Literature Survey, Data, and Stylized Facts," IMF Working Papers 12/203, International Monetary Fund.
    10. Xiao, J., 2016. "Corporate Debt Structure, Precautionary Savings, and Investment Dynamics," Cambridge Working Papers in Economics 1666, Faculty of Economics, University of Cambridge.
    11. Uhrig-Homburg, Marliese, 2013. "Sovereign credit spreads," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4217-4225.

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