Sovereign Debt as Intertemporal Barter

Kenneth M. Kletzer and Brian D. Wright.
Authors registered in the RePEc Author Service: Brian Davern Wright () and Kenneth Kletzer

No C98-100, Center for International and Development Economics Research (CIDER) Working Papers from University of California at Berkeley

Abstract: Borrowing and lending between sovereign parties is modelled as intertemporal barter that smooths the consumption of a risk-averse party subject to endowment shocks. The surplus anticipated in the relationship offers sufficient incentive for cooperation by all parties, including any other competitive agents who are potential lenders to the sovereign. The sole punishments consist of renegotiation-proof changes in the path of future payments. We show that intertemporal trade can be sustained in the absence of any exogenous enforcement of lending relationships whatsoever. That is, borrowing and lending are possible under anarchy, and are supported by punishments that consist of cheating any cheater. Long-term implicit relationships may be fulfilled as the continual renegotiation of simple incomplete short-term loans. The analysis suggests that the crucial role of the explicit loan contract is the identification of the relationship and the parties involved.

Date: 1998-07-01
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Related works:
Journal Article: Sovereign Debt as Intertemporal Barter (2000)
Working Paper: Sovereign Debt as Intertemporal Barter (2000)
Working Paper: Sovereign Debt as Intertemporal Barter (1998)
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