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The Puzzle of Cooperation in International Debt, from Reputation and International Cooperation: Sovereign Debt across Three Centuries

In: Reputation and International Cooperation: Sovereign Debt across Three Centuries

Author

Listed:
  • Michael Tomz

    (Stanford University)

Abstract
How does cooperation emerge in a condition of international anarchy? Michael Tomz sheds new light on this fundamental question through a study of international debt across three centuries. Tomz develops a reputational theory of cooperation between sovereign governments and foreign investors. He explains how governments acquire reputations in the eyes of investors, and argues that concerns about reputation sustain international lending and repayment. Tomz's theory generates novel predictions about the dynamics of cooperation: how investors treat first-time borrowers, how access to credit evolves as debtors become more seasoned, and how countries ascend and descend the reputational ladder by acting contrary to investors' expectations. Tomz systematically tests his theory and the leading alternatives across three centuries of financial history. His remarkable data, gathered from archives in nine countries, cover all sovereign borrowers. He deftly combines statistical methods, case studies, and content analysis to scrutinize theories from as many angles as possible. Tomz finds strong support for his reputational theory while challenging prevailing views about sovereign debt. His pathbreaking study shows that, across the centuries, reputations have guided lending and repayment in consistent ways. Moreover, Tomz uncovers surprisingly little evidence of punitive enforcement strategies. Creditors have not compelled borrowers to repay by threatening military retaliation, imposing trade sanctions, or colluding to deprive defaulters of future loans. He concludes by highlighting the implications of his reputational logic for areas beyond sovereign debt, further advancing our understanding of the puzzle of cooperation under anarchy.

Suggested Citation

  • Michael Tomz, 2007. "The Puzzle of Cooperation in International Debt, from Reputation and International Cooperation: Sovereign Debt across Three Centuries," Introductory Chapters, in: Reputation and International Cooperation: Sovereign Debt across Three Centuries, Princeton University Press.
    • Handle: RePEc:pup:chapts:8558-1
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    Citations

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    Cited by:

    1. Marc Flandreau & Juan H. Flores & Norbert Gaillard & Sebastián Nieto-Parra, 2010. "The End of Gatekeeping: Underwriters and the Quality of Sovereign Bond Markets, 1815–2007," NBER Chapters, in: NBER International Seminar on Macroeconomics 2009, pages 53-92, National Bureau of Economic Research, Inc.
    2. Lauren M. Phillips*, 2013. "The politics of joint sovereign borrowing: The Venezuelan/Argentine Bono del Sur," Review of International Political Economy, Taylor & Francis Journals, vol. 20(3), pages 576-604, June.
    3. Popov, Sergey V. & Wiczer, David G., 2009. "Equilibrium sovereign default with endogenous exchange rate depreciation," MPRA Paper 18854, University Library of Munich, Germany.
    4. Chia-yi Lee & Noel P. Johnston, 2016. "Improving Reputation BIT by BIT: Bilateral Investment Treaties and Foreign Accountability," International Interactions, Taylor & Francis Journals, vol. 42(3), pages 429-451, May.
    5. Habib, Michel & Collard, Fabrice & Rochet, Jean Charles, 2016. "The Reluctant Defaulter: A Tale of High Government Debt," CEPR Discussion Papers 11299, C.E.P.R. Discussion Papers.
    6. Bernardo Guimaraes, 2011. "Sovereign default: which shocks matter?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(4), pages 553-576, October.
    7. World Bank, 2014. "Albania Public Finance Review : Part 1. Toward a Sustainable Fiscal Policy for Growth," World Bank Publications - Reports 17279, The World Bank Group.
    8. Jana Grittersov�, 2014. "Transfer of reputation: Multinational banks and perceived creditworthiness of transition countries," Review of International Political Economy, Taylor & Francis Journals, vol. 21(4), pages 878-912, August.
    9. David Lake, 2009. "Open economy politics: A critical review," The Review of International Organizations, Springer, vol. 4(3), pages 219-244, September.
    10. Brad L. LeVeck & Neil Narang, 2017. "How International Reputation Matters: Revisiting Alliance Violations in Context," International Interactions, Taylor & Francis Journals, vol. 43(5), pages 797-821, September.
    11. Stephen Nelson, 2010. "Does compliance matter? Assessing the relationship between sovereign risk and compliance with international monetary law," The Review of International Organizations, Springer, vol. 5(2), pages 107-139, June.

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