Access

You are not currently logged in.

Access your personal account or get JSTOR access through your library or other institution:

login

Log in to your personal account or through your institution.

Holdouts in Sovereign Debt Restructuring: A Theory of Negotiation in a Weak Contractual Environment

ROHAN PITCHFORD and MARK L. J. WRIGHT
The Review of Economic Studies
Vol. 79, No. 2 (April 2012), pp. 812-837
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/23261351
Page Count: 26
  • Download ($42.00)
  • Subscribe ($19.50)
  • Cite this Item
Holdouts in Sovereign Debt Restructuring: A Theory of Negotiation in a Weak Contractual Environment
Preview not available

Abstract

Why is it difficult to restructure sovereign debt in a timely manner? In this paper, we 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. We then use the theory to analyse recent policy proposals aimed at ensuring equal repayment of creditor claims. Strikingly, we 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. A calibrated version of the model can account for observed delays and finds that free riding is quantitatively relevant: whereas in simple low-cost debt-restructuring operations, collective mechanisms will reduce delay by more than 60%, in high-cost complicated restructurings, the adoption of such mechanisms results in a doubling of delay.

Page Thumbnails

  • Thumbnail: Page 
812
    812
  • Thumbnail: Page 
813
    813
  • Thumbnail: Page 
814
    814
  • Thumbnail: Page 
815
    815
  • Thumbnail: Page 
816
    816
  • Thumbnail: Page 
817
    817
  • Thumbnail: Page 
818
    818
  • Thumbnail: Page 
819
    819
  • Thumbnail: Page 
820
    820
  • Thumbnail: Page 
821
    821
  • Thumbnail: Page 
822
    822
  • Thumbnail: Page 
823
    823
  • Thumbnail: Page 
824
    824
  • Thumbnail: Page 
825
    825
  • Thumbnail: Page 
826
    826
  • Thumbnail: Page 
827
    827
  • Thumbnail: Page 
828
    828
  • Thumbnail: Page 
829
    829
  • Thumbnail: Page 
830
    830
  • Thumbnail: Page 
831
    831
  • Thumbnail: Page 
832
    832
  • Thumbnail: Page 
833
    833
  • Thumbnail: Page 
834
    834
  • Thumbnail: Page 
835
    835
  • Thumbnail: Page 
836
    836
  • Thumbnail: Page 
837
    837