IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Inefficient Private Renegotiation of Sovereign Debt

  • Kletzer, Kenneth

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.

File URL:
Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at

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.

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 357.

in new window

Date of creation: Dec 1989
Date of revision:
Handle: RePEc:cpr:ceprdp:357
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.:

as in new window
  1. Kletzer, K.M., 1988. "Sovereign Debt Renegotiation Under Asymmetric Information," Papers 555, Yale - Economic Growth Center.
  2. repec:oup:restud:v:54:y:1987:i:3:p:345-64 is not listed on IDEAS
  3. Fernandez, R. & Rosenthal, R.W., 1988. "Sovereign-Debt Renegotiations: A Strtegic Analysis," Papers 85, Boston University - Center for Latin American Development Studies.
  4. Jeremy I. Bulow & Kenneth Rogoff, 1986. "A Constant Recontracting Model of Sovereign Debt," NBER Working Papers 2088, National Bureau of Economic Research, Inc.
  5. Rogerson, William P, 1985. "Repeated Moral Hazard," Econometrica, Econometric Society, vol. 53(1), pages 69-76, January.
  6. repec:oup:restud:v:50:y:1983:i:3:p:411-26 is not listed on IDEAS
  7. Harris, Milton & Raviv, Artur, 1979. "Optimal incentive contracts with imperfect information," Journal of Economic Theory, Elsevier, vol. 20(2), pages 231-259, April.
  8. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
  9. repec:oup:restud:v:48:y:1981:i:2:p:289-309 is not listed on IDEAS
  10. repec:oup:restud:v:52:y:1985:i:4:p:647-63 is not listed on IDEAS
  11. Worrall, Tim, 1988. "Debt with potential repudiation," Discussion Papers, Series II 69, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
  12. 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.
  13. 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.
  14. 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.
  15. Sappington, David, 1983. "Limited liability contracts between principal and agent," Journal of Economic Theory, Elsevier, vol. 29(1), pages 1-21, February.
  16. 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.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

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: ()

The email address of this maintainer does not seem to be valid anymore. Please ask to update the entry or send us the correct address

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.