Renegotiation Policies in Sovereign Defaults
Cristina Arellano and
Yan Bai
American Economic Review, 2014, vol. 104, issue 5, 94-100
Abstract:
This paper studies an optimal renegotiation protocol designed by a benevolent planner when two countries renegotiate with the same lender. The solution calls for recoveries that induce each country to default or repay, trading off the deadweight costs and the redistribution benefits of default independently of the other country. This outcome contrasts with a decentralized bargaining solution where default in one country increases the likelihood of default in the second country because recoveries are lower when both countries renegotiate. The paper suggests that policies geared at designing renegotiation processes that treat countries in isolation can prevent contagion of debt crises.
JEL-codes: H63 (search for similar items in EconPapers)
Date: 2014
Note: DOI: 10.1257/aer.104.5.94
References: Add references at CitEc
Citations: View citations in EconPapers (5)
Downloads: (external link)
http://www.aeaweb.org/articles.php?doi=10.1257/aer.104.5.94 (application/pdf)
http://www.aeaweb.org/aer/app/10405/P2014_1166_app.pdf (application/pdf)
http://www.aeaweb.org/aer/ds/10405/P2014_1166_ds.zip (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.
Related works:
Working Paper: Renegotiation Policies in Sovereign Defaults (2014) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:aea:aecrev:v:104:y:2014:i:5:p:94-100
Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions
Access Statistics for this article
American Economic Review is currently edited by Esther Duflo
More articles in American Economic Review from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().