Structuring and Restructuring Sovereign Debt: The Role of Seniority -super-1

Patrick Bolton and Olivier Jeanne

The Review of Economic Studies, 2009, vol. 76, issue 3, 879-902

Abstract: We show how the willingness-to-pay problem and lack of exclusivity in sovereign lending may result in an equilibrium sovereign debt structure that is excessively difficult to restructure. A bankruptcy regime for sovereigns can alleviate this inefficiency but only if it is endowed with far-reaching powers to enforce seniority and subordination clauses in debt contracts. A bankruptcy regime that makes sovereign debt easier to restructure without enforcing seniority may decrease welfare. Copyright , Wiley-Blackwell.

Date: 2009
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