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A new bargaining perspective on sovereign debt restructuring

Miller,Marcus, Ghosal,Sayantan, (2017), “A new bargaining perspective on sovereign debt restructuring”, VoxEU, 17 April

Lacking some supra-national, overseeing authority, sovereigns in default typically renegotiate with their creditors. In these negotiations, the owed principal typically receives a ‘haircut’. This column explores whether overburdened sovereign debtors can strategically leverage delay as they bargain with their creditors. Under asymmetric information, a delay in the form of offers that the debtor knows won’t be accepted can work out in the debtor’s favour. The findings suggest that strategic delay can be used to show where restructuring is necessary.

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