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Risk Sharing with the Monarch: Excusable Defaults and Contingent Debt in the Age of Philip II, 1556-1598


  • Mauricio Drelichman
  • Hans-Joachim Voth


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.

Suggested Citation

  • Mauricio Drelichman & Hans-Joachim Voth, 2012. "Risk Sharing with the Monarch: Excusable Defaults and Contingent Debt in the Age of Philip II, 1556-1598," Working Papers 578, Barcelona Graduate School of Economics.
  • Handle: RePEc:bge:wpaper:578

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    References listed on IDEAS

    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters,in: This Time Is Different: Eight Centuries of Financial Folly Princeton University Press.
    2. Reinhart, Karmen & Rogoff, Kenneth, 2009. ""This time is different": panorama of eight centuries of financial crises," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 77-114, March.
    3. 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.
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    Cited by:

    1. Drelichman, Mauricio & Voth, Hans-Joachim, 2011. "Serial defaults, serial profits: Returns to sovereign lending in Habsburg Spain, 1566-1600," Explorations in Economic History, Elsevier, vol. 48(1), pages 1-19, January.
    2. Irigoin, A, 2012. "Bounded Leviathan: or why North & Weingast are only right on the right half," MPRA Paper 39722, University Library of Munich, Germany.

    More about this item


    sovereign debt; syndication; diversification; risk transfer; Spain;

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913

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