Debt Bailouts and Constitutions

The Political Economy of Debt Moratoria, Bailouts and Bankruptcy

This paper develops a simple dynamic general equilibrium model of an agricultural economy, in which poor farmers borrow wheat from rich farmers to invest on their land. Because wheat output is stochastic (we allow for both idiosyncratic and aggregate shocks), there may be default ex-post. We compare equilibria in this economy with and without political intervention. Intervention is decided thro...

The Dynamics of Sovereign Debt Crises and Bailouts

Inspired by the European debt crisis of 2010, this paper provides a theoretical framework to analyze the dynamics of the sovereign debt ∗This is preliminary indeed. The results have not yet been checked with sufficient care, despite multiple presentations of earlier drafts. We are thankful to our discussants so far. We are particularly thankful for an insightful discussion by Fernando Broner at...

Bailouts and Financial Fragility

Should policy makers be prevented from bailing out investors in the event of a crisis? I study this question in a model of financial intermediation with limited commitment. When a crisis occurs, the policy maker will respond by transferring resources to those investors facing losses. The anticipation of such a “bailout” distorts ex ante incentives, leading intermediaries to become excessively i...

Constitutions and Democratic Breakdowns

Aristotelian constitutions

One of the chief problems about discussing any aspect of Aristotle's political thought, but especially his thinking about constitutions, is the apparent disorder of the Politics. The relatively loose and dialectical nature of the argument is certainly responsible for some of its unevenness: the repetitions, the omissions of promised discussions of particular topics, and the sudden turns, perhap...