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

  • Drelichman, Mauricio
  • Voth, Hans-Joachim

Contingent sovereign debt can create important welfare gains. Nonetheless, there is almost no issuance today. Using hand-collected archival data, we examine the first known case of large-scale use of state-contingent sovereign debt in history. Philip II of Spain entered into hundreds of contracts whose value and due date depended on verifiable, exogenous events such as the arrival of silver fleets. We show that this allowed for effective risk-sharing between the king and his bankers. The data also strongly suggest that the defaults that occurred were excusable – they were simply contingencies over which Crown and bankers had not contracted previously.

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Paper provided by Vancouver School of Economics in its series Economics working papers with number mauricio_drelichman-2011-14.

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Length: 44 pages
Date of creation: 04 Jul 2011
Date of revision: 06 Jun 2012
Handle: RePEc:ubc:bricol:mauricio_drelichman-2011-14
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