Private International Debt with Risk of Repudiation

Karsten Jeske

Journal of Political Economy, 2006, vol. 114, issue 3, 576-593

Abstract: The risk of repudiation plays a central role in determining the size of international capital flows. In this paper I compare a centralized arrangement for international debt, where only governments borrow and lend internationally, with a decentralized arrangement, where individual borrowers have access to international capital markets. I show that a centralized setup allows more international risk sharing and higher welfare than a decentralized setup. That is, there is a positive role for government regulation of international borrowing.

Date: 2006
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