The Price of Cheeky Contracting
34 Pages Posted: 27 Aug 2021 Last revised: 31 Aug 2021
Date Written: August 25, 2021
An implication of the incompleteness of contracts is that there are going to be gaps and ambiguities that either side can exploit. We ask whether the expectation that a counterparty is likely to act aggressively in its use of contract language impacts the price that market participants attach to that contract. To do our analysis, we look at how markets price contract terms for the perennial “bad boy” of the sovereign debt markets, the Republic of Argentina. The results are consistent with a market penalty for cheeky contracting.
Keywords: opportunistic contracting, sovereign debt, bad faith
JEL Classification: F34, H63, H74, K12
Suggested Citation: Suggested Citation