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

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  • Drelichman, Mauricio
  • Voth, Hans-Joachim

Abstract

Contingent sovereign debt has the potential to create important welfare gains--but actual issuance is rare. Using hand-collected archival data, we examine the first known case of large-scale issuance of contingent sovereign debt in history. Philip II of Spain entered into hundreds of contracts whose value and due date was contingent upon verifiable, exogenous events such as the arrival of silver fleets. This allowed for effective risk-sharing between the king and his bankers. The defaults that occurred were excusable, occurred in bad states of the world, and under conditions that could not be foreseen or contracted on ex ante.

Suggested Citation

  • Drelichman, Mauricio & Voth, Hans-Joachim, 2011. "Risk Sharing with the Monarch: Contigent Debt and Excusable Defaults in the Age of Philip II, 1556-1598," CEPR Discussion Papers 8492, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:8492
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    Cited by:

    1. Sebastian Edwards & Francis A. Longstaff & Alvaro Garcia Marin, 2015. "The U.S. Debt Restructuring of 1933: Consequences and Lessons," NBER Working Papers 21694, National Bureau of Economic Research, Inc.
    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.
    3. Irigoin, Maria Alejandra & Grafe, Regina, 2012. "Bounded Leviathan: or why North and Weingast are only right on the right half," Economic History Working Papers 44492, London School of Economics and Political Science, Department of Economic History.
    4. Mauricio Drelichman & Hans-Joachim Voth, 2016. "Duplication without constraints: Álvarez-Nogal and Chamley's analysis of debt policy under Philip II," Economic History Review, Economic History Society, vol. 69(3), pages 999-1006, August.
    5. Alberto Feenstra, 2015. "Circumventing credible commitment: GroningenÕs default and the Dutch RepublicÕs federal escape route, 1666-1761," Working Papers 0075, Utrecht University, Centre for Global Economic History.

    More about this item

    Keywords

    Contingent debt; emerging debt markets; excusable default; Philip II; Sovereign debt;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913

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