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Sovereign-Debt Renegotiations: A Strtegic Analysis

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  • FERNANDEZ, R.
  • ROSENTHAL, R.W.

Abstract

The process of debt-rescheduling between a creditor and a sovereign (LDC) debtor is modeled as a noncooperative game built on a one-sector growth model. The creditor's threat to impose default penalties is ignored here as inherently incredible; instead, the debtor's motivation for repayment is to reap benefits from attaining an improved credit standing in international capital markets. The creditor can forgive portions of the outstanding debt so that a real-time bargaining process results with concessions being in the form of debt-service payments by the debtor and debt forgiveness by the creditor. Subgame-perfect equilibria of the game are characterized the main finding is that these all result in Pareto optima in which the creditor extracts all the surplus.
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Suggested Citation

  • Fernandez, R. & Rosenthal, R.W., 1988. "Sovereign-Debt Renegotiations: A Strtegic Analysis," Papers 85, Boston University - Center for Latin American Development Studies.
    • Handle: RePEc:fth:bostla:85
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    Cited by:

    1. Fernandez-Arias, Eduardo, 1991. "A dynamic bargaining model of sovereign debt," Policy Research Working Paper Series 778, The World Bank.
    2. Mark Gertler & Kenneth Rogoff, 1989. "Developing Country Borrowing and Domestic Wealth," NBER Working Papers 2887, National Bureau of Economic Research, Inc.
    3. Cohen, D. & Verdier, T., 1991. "Debt, Debt relief and Growth: a Bargaining Approach," DELTA Working Papers 91-19, DELTA (Ecole normale supérieure).
    4. Diwan, Ishac & Verdier, Thierry, 1991. "Distributional aspects of debt adjustment," Policy Research Working Paper Series 657, The World Bank.
    5. Fernando Broner & Alberto Martin & Jaume Ventura, 2010. "Sovereign Risk and Secondary Markets," American Economic Review, American Economic Association, vol. 100(4), pages 1523-1555, September.
    6. Bester, Helmut, 1994. "The Role of Collateral in a Model of Debt Renegotiation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(1), pages 72-86, February.
    7. Eaton, Jonathan & Fernandez, Raquel, 1995. "Sovereign debt," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 3, pages 2031-2077, Elsevier.
    8. Cole, Harold L & Dow, James & English, William B, 1995. "Default, Settlement, and Signalling: Lending Resumption in a Reputational Model of Sovereign Debt," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 365-385, May.
    9. Raquel Fernandez & Robert W. Rosenthal, 1989. "Sovereign-Debt Renegotiations Revisted," NBER Working Papers 2981, National Bureau of Economic Research, Inc.
    10. Kletzer, Kenneth, 1989. "Inefficient Private Renegotiation of Sovereign Debt," CEPR Discussion Papers 357, C.E.P.R. Discussion Papers.
    11. Fernando Broner & Jaume Ventura, 2011. "Globalization and Risk Sharing," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 78(1), pages 49-82.
    12. Mohr, Ernst, 1990. "Burn the forest!: A bargaining theoretic analysis of a seemingly perverse proposal to protect the rainforest," Kiel Working Papers 447, Kiel Institute for the World Economy.
    13. Fernandez, Raquel & Glazer, Jacob, 1990. "The scope for collusive behavior among debtor countries," Journal of Development Economics, Elsevier, vol. 32(2), pages 297-313, April.

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