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In this paper the authors present a theory of the sovereign debt restructuring process in which delay arises as individual creditors hold-up a settlement in order to extract greater payments from the sovereign. They then use the theory to analyze recent policy proposals aimed at ensuring equal repayment of creditor claims. Strikingly, they show that such collective action policies may increase delay by encouraging free-riding on negotiation costs, even while preventing hold-up and reducing total negotiation costs.
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