Holdouts in sovereign debt restructuring
Subtitle: a theory of negotiation in a weak contractual environment
By: Rohan Pitchford, Mark L. J. Wright
Contributors: Wright, Mark L. J.; National Bureau of Economic Research
Series: NBER working paper series -- working paper 16632; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 16632.
Publisher: National Bureau of Economic Research
Published: 2010
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "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 set- tlement in order to extract greater payments from the sovereign.  We then use the theory to analyze 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 sim- ple 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"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 4/7/2011.

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