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Structuring and Restructuring Sovereign Debt: The Role of Seniority -super-1

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  • Patrick Bolton
  • Olivier Jeanne

Abstract

We show how the willingness-to-pay problem and lack of exclusivity in sovereign lending may result in an equilibrium sovereign debt structure that is excessively difficult to restructure. A bankruptcy regime for sovereigns can alleviate this inefficiency but only if it is endowed with far-reaching powers to enforce seniority and subordination clauses in debt contracts. A bankruptcy regime that makes sovereign debt easier to restructure without enforcing seniority may decrease welfare. Copyright , Wiley-Blackwell.

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  • Patrick Bolton & Olivier Jeanne, 2009. "Structuring and Restructuring Sovereign Debt: The Role of Seniority -super-1," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 76(3), pages 879-902.
    • Handle: RePEc:oup:restud:v:76:y:2009:i:3:p:879-902
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    File URL: http://hdl.handle.net/10.1111/j.1467-937X.2009.00541.x
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