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Risk sharing with the monarch: contingent debt and excusable defaults in the age of Philip II, 1556–1598


Drelichman, Mauricio; Voth, Hans-Joachim (2014). Risk sharing with the monarch: contingent debt and excusable defaults in the age of Philip II, 1556–1598. Working paper series / Department of Economics 145, University of Zurich.

Abstract

Contingent sovereign debt can create important welfare gains. Nonetheless, there is almost no issuance today. Using hand-collected archival data, we examine the first known case of large-scale use of state-contingent sovereign debt in history. Philip II of Spain entered into hundreds of contracts whose value and due date depended on verifiable, exogenous events such as the arrival of silver fleets. We show that this allowed for effective risk-sharing between the king and his bankers. The existence of statecontingent debt also sheds light on the nature of defaults – they were simply contingencies over which Crown and bankers had not contracted previously.

Abstract

Contingent sovereign debt can create important welfare gains. Nonetheless, there is almost no issuance today. Using hand-collected archival data, we examine the first known case of large-scale use of state-contingent sovereign debt in history. Philip II of Spain entered into hundreds of contracts whose value and due date depended on verifiable, exogenous events such as the arrival of silver fleets. We show that this allowed for effective risk-sharing between the king and his bankers. The existence of statecontingent debt also sheds light on the nature of defaults – they were simply contingencies over which Crown and bankers had not contracted previously.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:H1, H63, N43
Uncontrolled Keywords:Sovereign debt, contingent debt, fiscal policy, debt crisis
Language:English
Date:March 2014
Deposited On:26 Mar 2014 16:44
Last Modified:15 Aug 2017 08:15
Series Name:Working paper series / Department of Economics
Number of Pages:41
ISSN:1664-7041
Official URL:http://www.econ.uzh.ch/static/wp/econwp145.pdf
Related URLs:http://www.econ.uzh.ch/static/workingpapers.php

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