A Seniority Arrangement for Sovereign Debt

• Autores: Satyajit Chatterjee, Burcu Eyigungor
• Localización: American economic review, ISSN 0002-8282, Vol. 105, Nº 12, 2015, págs. 3740-3765
• Idioma: inglés
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• Resumen

  • A sovereign's inability to commit to a course of action regarding future borrowing and default behavior makes long-term debt costly (the problem of debt dilution). One mechanism to mitigate this problem is the inclusion of a seniority clause in debt contracts. In the event of default, creditors are to be paid off in the order in which they lent (the "absolute priority" or "first-in-time" rule). In this paper, we propose a modification of the absolute priority rule suited to sovereign debts contracts and analyze its positive and normative implications within a quantitatively realistic model of sovereign debt and default. (JEL E32, E44, F34, G15, H63, O16, O19)