Inefficient Private Renegotiation of Sovereign Debt
The literature on sovereign debt emphasizes that international financial transactions are impeded because the fulfilment of contractual obligations by a government is time-inconsistent. The process of renegotiation between private creditors and debtor governments can create further inefficiencies in the world allocation of capital. In this paper, two potential sources of social cost in the private renegotiation of debt repayments and new loans are discussed. First, legal privileges accorded to existing creditors by their collective governments can render time-consistent the efficient allocation of capital constrained by sovereign immunity when there is ex post bargaining over net transfers. The absence of possibilities for full commitment by creditors implies that the outcomes achievable with ex post bargaining of simple debt contracts differ from those achievable with state-contingent contracts, as conceived in the literature. Second, the use of offers in a renegotiation to elicit private information about debtor characteristics is socially costly.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
|Date of creation:||Dec 1989|
|Date of revision:|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Froot, Kenneth A & Scharfstein, David S & Stein, Jeremy C, 1989.
" LDC Debt: Forgiveness, Indexation, and Investment Incentives,"
Journal of Finance,
American Finance Association, vol. 44(5), pages 1335-50, December.
- Kenneth A. Froot & David S. Scharfstein & Jeremy C. Stein, 1988. "LDC Debt: Forgiveness, Indexation, and Investment Incentives," NBER Working Papers 2541, National Bureau of Economic Research, Inc.
- Jonathan Eaton & Mark Gersovitz, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Oxford University Press, vol. 48(2), pages 289-309.
- Kletzer, Kenneth M, 1984. "Asymmetries of Information and LDC Borrowing with Sovereign Risk," Economic Journal, Royal Economic Society, vol. 94(374), pages 287-307, June.
- Jeremy A.Rogoff Bulow & Kenneth, 1986.
"A Constant Recontracting Model of Sovereign Debt,"
University of Chicago - George G. Stigler Center for Study of Economy and State
43, Chicago - Center for Study of Economy and State.
- Bulow, Jeremy & Rogoff, Kenneth S., 1989. "A Constant Recontracting Model of Sovereign Debt," Scholarly Articles 12491028, Harvard University Department of Economics.
- Jeremy I. Bulow & Kenneth Rogoff, 1986. "A Constant Recontracting Model of Sovereign Debt," NBER Working Papers 2088, National Bureau of Economic Research, Inc.
- Joel Sobel & Ichiro Takahashi, 1983. "A Multistage Model of Bargaining," Review of Economic Studies, Oxford University Press, vol. 50(3), pages 411-426.
- Harris, Milton & Raviv, Artur, 1979. "Optimal incentive contracts with imperfect information," Journal of Economic Theory, Elsevier, vol. 20(2), pages 231-259, April.
- Kletzer, K.M., 1988. "Sovereign Debt Renegotiation Under Asymmetric Information," Papers 555, Yale - Economic Growth Center.
- Ariel Rubinstein, 2010.
"Perfect Equilibrium in a Bargaining Model,"
Levine's Working Paper Archive
252, David K. Levine.
- Raquel Fernandez & Robert W. Rosenthal, 1988.
"Sovereign-debt Renegotiations: A Strategic Analysis,"
NBER Working Papers
2597, National Bureau of Economic Research, Inc.
- Fernandez, R. & Rosenthal, R.W., 1988. "Sovereign-Debt Renegotiations: A Strtegic Analysis," Papers 85, Boston University - Center for Latin American Development Studies.
- Sappington, David, 1983. "Limited liability contracts between principal and agent," Journal of Economic Theory, Elsevier, vol. 29(1), pages 1-21, February.
- Worrall, Tim, 1990.
"Debt with potential repudiation,"
European Economic Review,
Elsevier, vol. 34(5), pages 1099-1109, July.
- Douglas Gale & Martin Hellwig, 1985. "Incentive-Compatible Debt Contracts: The One-Period Problem," Review of Economic Studies, Oxford University Press, vol. 52(4), pages 647-663.
- Herschel I. Grossman & John B. Van Huyck, 1985.
"Sovereign Debt as a Contingent Claim: Excusable Default, Repudiation, and Reputation,"
NBER Working Papers
1673, National Bureau of Economic Research, Inc.
- Grossman, Herschel I & Van Huyck, John B, 1988. "Sovereign Debt as a Contingent Claim: Excusable Default, Repudiation, and Reputation," American Economic Review, American Economic Association, vol. 78(5), pages 1088-97, December.
- Rogerson, William P, 1985. "Repeated Moral Hazard," Econometrica, Econometric Society, vol. 53(1), pages 69-76, January.
- Eaton, Jonathan, 1990. "Debt Relief and the International Enforcement of Loan Contracts," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 43-56, Winter.
- Anat R. Admati & Motty Perry, 1987. "Strategic Delay in Bargaining," Review of Economic Studies, Oxford University Press, vol. 54(3), pages 345-364.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:357. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.