Pooling sovereign risks: The case of environmental treaties and international debt
Journal
Journal of Development Economics
ISSN-Digital
0304-3878
Type
journal article
Date Issued
1998-02-01
Author(s)
Mohr, Ernst
;
Thomas, Jonathan P.
Abstract
A model is analysed in which a sovereign country engages in independent obligations to repay a creditor bank and to keep an environmental treaty. It is shown that the linkage of both obligations through a cross-default contract, whereby the sovereign is deemed to be in default of both contracts if either is defaulted on, may reduce the sovereign risk attached to both the debt and the environmental contracts. A sufficient condition for this is that the initial sovereign risks be not too high. Moreover, the linkage will create an incentive for the sovereign and the bank to engage in a debt-for-nature swap.
Language
English
Keywords
Sovereign risk
Cross-default contract
Environmental treaty
HSG Classification
contribution to scientific community
Refereed
No
Publisher
Elsevier
Volume
55
Number
1
Start page
173
End page
190
Pages
18
Subject(s)
Division(s)
Eprints ID
40170