A Constant Recontracting Model of Sovereign Debt
The authors present a dynamic model of international lending in whi ch borrowers cannot commit to future repayments and debtors can sometime s successfully negotiate partial defaults or "rescheduling agreements." All parties in a debt rescheduling negotiation realize that today's rescheduling agreement may itself have to be renegotiated in the future. The authors' bargaining-theoretic approach allows them to handle the effects of uncertainty on sovereign debt contracts in a much more satisfactory way than in earlier analyses. The framework is readily extended to analyze the conflicting interests of different lenders, and of banks and creditor-country taxpayers. Copyright 1989 by University of Chicago Press.
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