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Structuring and restructuring sovereign debt : the role of a bankruptcy regime

Bolton, Patrick; Jeanne, Olivier

In an environment characterized by weak contractual enforcement, sovereign lenders can enhance the likelihood of repayment by making their claims more difficult to restructure ex post. We show, however, that competition for repayment between lenders may result in a sovereign debt that is excessively difficult to restructure in equilibrium. This inefficiency may be alleviated by a suitably designed bankruptcy regime that facilitates debt restructuring.

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Also Published In

Title
Journal of Political Economy
DOI
https://doi.org/10.1086/528759

More About This Work

Academic Units
Business
Published Here
December 23, 2010