The lack of a proper enforcement mechanism for sovereign debt generates a commitment failure. As a result, a sovereign may seek to improve its position in debt renegotiations and thus evade its debt obligations by reducing exports. Conditionality seeks to provide a solution to the incentive problem by addressing the commitment failure. Formalizing this argument, we show that conditionality helps the repayment of sovereign debt. In certain circumstances, it can eliminate debt overhang, especia...Expand abstract
- Journal of Development Economics
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Sovereign Debt, Structural Adjustment, and Conditionality.
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