Risk Sharing with the Monarch: Contingent Debt and Excusable Defaults in the Age of Philip II, 1556-1598

41 Pages Posted: 8 Jul 2011

See all articles by Mauricio Drelichman

Mauricio Drelichman

University of British Columbia (UBC) - Department of Economics; Canadian Institute for Advanced Research (CIFAR)

Hans-Joachim Voth

University of Zurich - UBS International Center of Economics in Society; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: July 6, 2011

Abstract

Contingent sovereign debt has the potential to create important welfare gains – but actual issuance is rare. Using hand-collected archival data, we examine the first known case of large-scale issuance of contingent sovereign debt in history. Philip II of Spain entered into hundreds of contracts whose value and due date was contingent upon verifiable, exogenous events such as the arrival of silver fleets. This allowed for effective risk-sharing between the king and his bankers. The defaults that occurred were excusable, occurred in bad states of the world, and under conditions that could not be foreseen or contracted on ex ante.

Keywords: contingent debt, excusable default, risk sharing, Spain

JEL Classification: F34, N23

Suggested Citation

Drelichman, Mauricio and Voth, Hans-Joachim, Risk Sharing with the Monarch: Contingent Debt and Excusable Defaults in the Age of Philip II, 1556-1598 (July 6, 2011). Available at SSRN: https://ssrn.com/abstract=1880089 or http://dx.doi.org/10.2139/ssrn.1880089

Mauricio Drelichman (Contact Author)

University of British Columbia (UBC) - Department of Economics ( email )

997-1873 East Mall
Vancouver, BC V6T 1Z1
Canada

Canadian Institute for Advanced Research (CIFAR) ( email )

180 Dundas Street West, Suite 1400
Toronto, Ontario
Canada

Hans-Joachim Voth

University of Zurich - UBS International Center of Economics in Society ( email )

Raemistrasse 71
Zuerich, 8006
Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
50
Abstract Views
628
PlumX Metrics