Reputation with multiple relationships: reviving reputation models of debt

Harold Cole and Patrick Kehoe

No 137, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: A traditional explanation for why sovereign governments repay debts is that they want to keep a good reputation so they can easily borrow more. Bulow and Rogoff have challenged this explanation. They argue that, in complete information models, government borrowing requires direct legal sanctions. We argue that, in incomplete information models with multiple trust relationships, large amounts of government borrowing can be supported by reputation alone.

Keywords: Debt (search for similar items in EconPapers)
Date: 1991
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Citations: View citations in EconPapers (3)

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