Abstract
The interaction between a creditor and a sovereign debtor is described as a ‘one-shot’ game with discrete actions—total or no debt-repudiation and seizure of asset holding abroad. Possible Nash equilibria where each player chooses an action as to maximize his expected payoff given his beliefs about the other player’s action and the implications of those actions on the players’ trustworthy reputation are identified. However, if reputation losses rise convexly with the players’ relative hostility, partial repudiation and seizure can be the preferred strategies. The preferred repudiation and seizure rates are analyzed under asymmetric and symmetric information about the state of the world. (JEL classification F34)
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Levy, A. Sovereign debt: Reputation, seizure and reputation. J Econ Finance 21, 69–79 (1997). https://doi.org/10.1007/BF02929024
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DOI: https://doi.org/10.1007/BF02929024