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Structuring and Restructuring Sovereign Debt: The Role of a Bankruptcy Regime

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  • Patrick Bolton
  • Olivier Jeanne

Abstract

In an environment characterized by weak contractual enforcement, sovereign lenders can enhance the likelihood of repayment by making their claims more difficult to restructure ex post. We show, however, that competition for repayment between lenders may result in a sovereign debt that is excessively difficult to restructure in equilibrium. This inefficiency may be alleviated by a suitably designed bankruptcy regime that facilitates debt restructuring. (c) 2007 by The University of Chicago. All rights reserved.

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  • Patrick Bolton & Olivier Jeanne, 2007. "Structuring and Restructuring Sovereign Debt: The Role of a Bankruptcy Regime," Journal of Political Economy, University of Chicago Press, vol. 115(6), pages 901-924, December.
  • Handle: RePEc:ucp:jpolec:v:115:y:2007:i:6:p:901-924
    DOI: 10.1086/528759
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