Aristocratic Privilege. Exploiting 'Good' Institutions

53 Pages Posted: 23 Oct 2019

See all articles by Kim Oosterlinck

Kim Oosterlinck

Université Libre de Bruxelles - SBS-EM, CEB

Loredana Ureche

University of Picardy Jules Verne - CRIISEA

Jacques-Marie Vaslin

University of Picardie

Date Written: October 2019


According to North and Weingast (1989), institutions that protect bondholders' rights lower borrowing costs for the state and are therefore beneficial to both the state and the bondholders. In this paper we argue that such institutions may be so strong that bondholders can exploit them for their own benefit, not the state's. To prove this point, we focus on the (non-)conversion of French bonds during the second quarter of the 19th century. At the time, France was able to convert its bonds. In other words, the state could ask bondholders to choose between redemption at par or a new bond with a lower coupon. Even though improvements in French credit meant the state could benefit from converting its debt as early as May 1825, no conversion took place before March 1852. Had it occurred at the first date, the French state would have saved the equivalent of 2.7 years of debt service. Our analysis shows that the institutions prevailing at the time gave large bondholders the power to veto any conversion.

Keywords: Conversions, France, institutions, Sovereign debts

JEL Classification: G12, G14, N23, N43

Suggested Citation

Oosterlinck, Kim and Ureche, Loredana and Vaslin, Jacques-Marie, Aristocratic Privilege. Exploiting 'Good' Institutions (October 2019). CEPR Discussion Paper No. DP14071. Available at SSRN:

Kim Oosterlinck (Contact Author)

Université Libre de Bruxelles - SBS-EM, CEB ( email )

50 Avenue Roosevelt, CP114/03
Brussels 1050

Loredana Ureche

University of Picardy Jules Verne - CRIISEA ( email )

Pôle Universitaire Cathédrale
10 placette Lafleur BP 2716
Amiens, 80027

Jacques-Marie Vaslin

University of Picardie ( email )


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