Sovereign Debt and Joint Liability

An Economic Theory Model for Amending the Treaty of Lisbon

Bibliographic Data

ID9707718
AuthorsKaushik Basu (0000-0002-3705-055X, The World Bank and Cornell University), Joseph E Stiglitz (0000-0001-6149-046X, Columbia University)
Year2015
Volume125
Issue586
PagesF115-F130
Publication date2015-08-01
Peer ReviewedYes
Open AccessYes
TypeARTICLE
VenueThe Economic Journal (JOURNAL)
Journal identifiersISSN: 0013-0133 • E-ISSN: 1468-0297
PublisherOxford University Press (OUP) (PUBLISHER)
DOI10.1111/ecoj.12300
OpenAlexW2158211639
LanguageEN
Citations received2
References cited21

As the euro area crisis drags on, it is evident that a part of the problem lies in the architecture of debt within the euro area. This study argues that at least part of the debt problem could be addressed through limited cooperative action entailing appropriately structured contracts generating cross‐country liability for sovereign debt incurred by individual nations within the European Union. Such agreements are currently proscribed by the Treaty of Lisbon. We construct a game‐theoretic model demonstrating that there exist self‐fulfilling equilibria, which are Pareto superior to the existing outcome and which would come into existence if cross‐country debt liabilities were permitted

Debt · Economics · Joint and several liability · Law and economics · Liability · Macroeconomics · Political science · Sovereign debt · Sovereignty · Strict liability · Treaty · Accounting · Fiscal Policies and Political Economy · Global Financial Crisis and Policies · Law · Local Government Finance and Decentralization