Bonds and Brands: Foundations of Sovereign Debt Markets, 1820-1830
43 Pages Posted: 11 Jan 2010
Date Written: August 31, 2008
How does sovereign debt emerge? In the early nineteenth century, intermediaries’ market power and prestige served to overcome information asymmetries. Relying on insights from finance theory, we argue that capitalists turned to intermediaries’ reputations to guide their investment strategies. Intermediaries could in turn commit or else they would lose market share. This sustained the development of sovereign debt. This new perspective is backed by archival evidence and empirical data, and it suggests why strong but undemocratic states could borrow.
Keywords: intermediaries, reputation and signalling, sovereign debt, intitial public offerings
JEL Classification: G15, G23, N23, N26
Suggested Citation: Suggested Citation