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Evaluating the Welfare Effects of International Bankruptcy Regimes in a Political Economy Model

Author

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  • Burcu Eyigungor

    (Federal Reserve Bank of Phildelphia)

  • Satyajit Chatterjee

    (Federal Reserve Bank of Philadelphia)

Abstract

We evaluate the welfare benefits of international bankruptcy regimes in a political economy model of debt and default. We show that the socially optimal bankruptcy regime is likely to feature lower restructuring costs than the politically optimal bankruptcy regime. To the extent the current regime reflects the political preferences of borrowing countries, a case can be made for an international bankruptcy regime aimed at reducing (but not eliminating) restructuring costs.

Suggested Citation

  • Burcu Eyigungor & Satyajit Chatterjee, 2013. "Evaluating the Welfare Effects of International Bankruptcy Regimes in a Political Economy Model," 2013 Meeting Papers 645, Society for Economic Dynamics.
  • Handle: RePEc:red:sed013:645
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