A Constant Recontracting Model of Sovereign Debt

Citation:

Bulow, Jeremy, and Kenneth Rogoff. 1989. “A Constant Recontracting Model of Sovereign Debt.” The Journal of Political Economy 97: 155–178.
Article2.22 MB

Abstract:

We present a dynamic model of international lending in which borrowers cannot commit to future repayments and in which debtors can sometimes successfully negotiate partial defaulters or "rescheduling agreements." All parties in a debt rescheduling negotiation realize that today's rescheduling agreement may itself have to be renegotiated in the future. Our bargaining-theoretic approach allows us to handle the effects of uncertainty on sovereign debt contracts in a much more satisfactory way than in earlier analyses. The framework is readily extended to analyze the conflicting interests of different lenders and of banks and creditor country taxpayers.

Notes:

Reprinted from the JOURNAL OF POLITICAL ECONOMY published by the University of Chicago Press, copyright © 1989 by The University of Chicago. All rights reserved. One copy may be printed for individual use.

Last updated on 04/29/2013