Risk Sharing with the Monarch: Excusable Defaults and Contingent Debt in the Age of Philip II, 1556-1598
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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- Pezzolo, Luciano & Tattara, Giuseppe, 2008. "“Una fiera senza luogo”: Was Bisenzone an International Capital Market in Sixteenth-Century Italy?," The Journal of Economic History, Cambridge University Press, vol. 68(04), pages 1098-1122, December.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973, April.
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