Cueing Transition in Sovereign Debt Contracts: Network Effects, Coordination Games, and Focal Points in the Choice of Mandate Versus Contract

This chapter revisits the role of legal enforcement in sovereign debt markets. The conventional view is that the law of sovereign immunity denies creditors effective legal remedies. To many observers, weak legal enforcement is problematic, for effective legal remedies would facilitate credible repayment commitments. Though substantially correct, this perspective is also flawed. The assumption that creditors lack effective remedies implicitly treats sovereign immunity as a set of mandatory rules. In fact, sovereign lenders can and do bargain for greater enforcement rights. When courts enforce these bargains, legal remedies gain potency. Yet potent remedies need not improve the functioning of debt markets. Courts can create effective remedies against sovereign debtors only by imposing significant costs on third parties. Many loan debt contracts are drafted so as to maximize these externalities. The important question—given short shrift thus far—is whether the credibility-enhancing virtues of legal enforcement justify the costs.

Group behaviour in tacit coordination games with focal points – an experimental investigation

Games and Economic Behavior ◽

10.1016/j.geb.2019.08.001 ◽

2019 ◽

Vol 117 ◽

pp. 461-478 ◽

Cited By ~ 4

Author(s):

Stefania Sitzia ◽

Jiwei Zheng

Keyword(s):

Experimental Investigation ◽

Coordination Games ◽

Focal Points ◽

Group Behaviour ◽

Tacit Coordination

Meeting at Penn Station

Meeting at Grand Central ◽

10.23943/princeton/9780691154954.003.0006 ◽

2012 ◽

Author(s):

Lee Cronk ◽

Beth L. Leech

Keyword(s):

Theory Of Mind ◽

Collective Action ◽

Real World ◽

Common Knowledge ◽

Coordination Games ◽

Focal Points ◽

Coordination Problems ◽

Battle Of The Sexes ◽

Penn Station ◽

Thomas Schelling

This chapter discusses coordination problems in relation to cooperation. Coordination problems are essentially problems of information: although people would benefit from coordinating their activities, they lack common knowledge about how to do so. Even worse, they may actually have common knowledge about how to solve the problem but not know it. Thomas Schelling recognized one way to overcome this problem: focus on prominent, salient focal points that others are also likely to focus on. The chapter first examines the so-called “Theory of Mind” or “mentalizing” before explaining how collective action dilemmas can become coordination problems. It also explores trust and conflict in coordination games such as Stag Hunt Games and the Battle of the Sexes Game, concluding with anti-coordination games and how coordination operates in the real world.

Introduction

Accounting for the Fall of Silver ◽

10.1093/oso/9780198865025.003.0001 ◽

2020 ◽

pp. 1-20

Author(s):

Michael Schiltz

Keyword(s):

Transaction Cost ◽

Sovereign Debt ◽

Network Effects ◽

International Monetary System ◽

Late Nineteenth Century ◽

Financial Policy ◽

Policy Makers ◽

Monetary System ◽

Long Run ◽

Currency Competition

This chapter lays out the conceptual framework needed to grasp the challenges facing exchange bankers in late nineteenth-century Asia. It borrows from the transaction cost literature underlying the study of the structure of the international monetary system; and it subscribes to the notion that such structure is the product of international currency competition. In the historical literature, applications of these insights are surprisingly scarce. Yet it is demonstrated that, by (1) settling on the existence of a distinction between ‘center’ and ‘periphery’ and (2) the existence of ‘network effects’, the transaction cost approach may explain the persistence of monetary arrangements in the long run. Remarkably, seemingly ‘retreating’ currencies retain a degree of superiority that would not be warranted in case network effects were absent; vice versa, non-liquid currencies have only a very small chance at climbing the ladder of currency prestige—they are structurally disadvantaged. It is argued that the distinction between center and periphery is real, not just analytical, and has had tangible implications for monetary and financial policy makers in the fields of sovereign debt and trade finance.

A Seniority Arrangement for Sovereign Debt

The American Economic Review ◽

10.1257/aer.20130932 ◽

2015 ◽

Vol 105 (12) ◽

pp. 3740-3765 ◽

Cited By ~ 11

Author(s):

Satyajit Chatterjee ◽

Burcu Eyigungor

Keyword(s):

Sovereign Debt ◽

Realistic Model ◽

Priority Rule ◽

Debt Contracts ◽

Absolute Priority ◽

Course Of Action ◽

The Absolute ◽

Debt Dilution ◽

Normative Implications

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)

Political Risk and Sovereign Debt Contracts

SSRN Electronic Journal ◽

10.2139/ssrn.1962788 ◽

2011 ◽

Cited By ~ 4

Author(s):

Stephen J. Choi ◽

G. Mitu Gulati ◽

Eric A. Posner

Keyword(s):

Sovereign Debt ◽

Political Risk ◽

Debt Contracts

Focal points in pure coordination games: An experimental investigation

Theory and Decision ◽

10.1007/bf01079211 ◽

1994 ◽

Vol 36 (2) ◽

pp. 163-185 ◽

Cited By ~ 91

Author(s):

Judith Mehta ◽

Chris Starmer ◽

Robert Sugden

Keyword(s):

Experimental Investigation ◽

Coordination Games ◽

Focal Points

EVOLUTION OF COORDINATION IN SOCIAL NETWORKS: A NUMERICAL STUDY

International Journal of Modern Physics C ◽

10.1142/s012918311001583x ◽

2010 ◽

Vol 21 (10) ◽

pp. 1277-1296 ◽

Cited By ~ 8

Author(s):

MARCO TOMASSINI ◽

ENEA PESTELACCI

Keyword(s):

Social Networks ◽

Network Effects ◽

Numerical Study ◽

Coordination Games ◽

Local Network ◽

Positive Role ◽

Social Polarization ◽

Extensive Numerical Simulation ◽

Theoretical Results ◽

Selection Of

Coordination games are important to explain efficient and desirable social behavior. Here we study these games by extensive numerical simulation on networked social structures using an evolutionary approach. We show that local network effects may promote selection of efficient equilibria in both pure and general coordination games and may explain social polarization. These results are put into perspective with respect to known theoretical results. The main insight we obtain is that clustering, and especially community structure in social networks has a positive role in promoting socially efficient outcomes.