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

Mauricio Drelichman and Hans-Joachim Voth

No 578, Working Papers from Barcelona Graduate School of Economics

Abstract: 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.

Keywords: sovereign debt; syndication; diversification; risk transfer; Spain (search for similar items in EconPapers)
JEL-codes: F34 G15 N23 (search for similar items in EconPapers)
Date: 2012-06
New Economics Papers: this item is included in nep-his
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Working Paper: Risk sharing with the monarch: Excusable defaults and contingent debt in the age of Philip II, 1556-1598 (2013) Downloads
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