, Volume 9, Issue 1, pp 49–75

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

Original Paper

DOI: 10.1007/s11698-014-0108-8

Cite this article as:
Drelichman, M. & Voth, HJ. Cliometrica (2015) 9: 49. doi:10.1007/s11698-014-0108-8


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 state-contingent debt also sheds light on the nature of defaults—they were simply contingencies over which Crown and bankers had not contracted previously.


Sovereign debt Excusable default Contingent lending Spain 

JEL Classification

N23 G12 H63 F34 

Copyright information

© Springer-Verlag Berlin Heidelberg 2014

Authors and Affiliations

  1. 1.Vancouver School of EconomicsThe University of British ColumbiaVancouverCanada
  2. 2.The Canadian Institute for Advanced ResearchTorontoCanada
  3. 3.University of ZurichZurichSwitzerland
  4. 4.UBS Center for Economics in SocietyZurichSwitzerland

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