Tirole, Jean (2015) Country Solidarity in Sovereign Crises. American Economic Review (AER), vol.105 (n°8). pp. 2333-2363.
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Abstract
When will solidarity, which emerges spontaneously from the fear of spillovers, be reinforced through contracting? The optimal pact between countries that differ substantially in their probability of distress is a simple debt contract with market financing, a borrowing cap, but no joint liability. While joint liability augments total surplus, the borrowing country cannot compensate the deep-pocket guarantor. By contrast, the optimal pact between two countries symmetrically exposed to shocks with an arbitrary correlation is a simple debt contract with joint liability, provided that shocks are sufficiently independent, spillovers sufficiently large, liquidity needs moderate and available sanctions sufficiently tough.
Item Type: | Article |
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Language: | English |
Date: | 2015 |
Refereed: | Yes |
Uncontrolled Keywords: | Sovereign debt, solidarity, joint liability, bailouts |
JEL Classification: | E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation F34 - International Lending and Debt Problems H63 - Debt; Debt Management |
Subjects: | B- ECONOMIE ET FINANCE |
Divisions: | TSE-R (Toulouse) |
Site: | UT1 |
Date Deposited: | 16 Mar 2015 14:55 |
Last Modified: | 02 Apr 2021 15:49 |
OAI Identifier: | oai:tse-fr.eu:28967 |
URI: | https://publications.ut-capitole.fr/id/eprint/16682 |