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11. Why do Sovereign Borrowers Post Collateral? Evidence from the 19th Century

Author:
Marc Flandreau, Stefano Pietrosanti, and Carlotta E. Schuster
Publication Date:
10-2021
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
This paper explores the reasons why sovereign borrowers post collateral. Such behavior is paradoxical because conventional interpretations of collateral stress repossession of the assets pledged as the key to securing lenders against information asymmetries and moral hazard. However, repossession is generally difficult in the case of sovereign debt and in some cases impossible. Nevertheless, such sovereign “hypothecations” have a long history and are again becoming very popular today in developing countries. To explain sovereign collateralization, we emphasize an informational channel. Posting collateral produces information on opaque borrowers by displaying borrowers’ behavior and resources. We support this interpretation by examining the hypothecation “mania” of 1849-1875, when sovereigns borrowing in the London Stock Exchange pledged all kinds of intangible revenues. Yet, at that time, sovereign immunity fully protected both sovereigns and their assets and possessions. Still, we show that hypothecations significantly decreased the cost of sovereign debt. To explain how, we stress the pledges’ role in documenting sovereigns’ wealth and the management of revenue streams. Based on an exhaustive library of bond prospectuses collected from primary sources, matched with a panel of sovereign bond yields and an innovative measure of sovereign fiscal transparency, we show that collateral minutely described in debt covenants served to document and monitor sovereign resources and development prospects. Encasing this information in contracts written by lawyers served to certify the quality of the resulting data disclosure process, explaining investors’ readiness to pay a premium.
Topic:
Economics, Finance, History, Innovation, Contracts, Sovereign Debt, and Collateral
Political Geography:
Global Focus

12. From Industrial Citizenship to Private Ordering? Contract, Status, and the Question of Consent

Author:
Ruth Dukes and Wolfgang Streeck
Publication Date:
11-2020
Content Type:
Working Paper
Institution:
Max Planck Sciences Po Center on Coping with Instability in Market Societies (MaxPo)
Abstract:
This paper revisits the notions of contract and status found in classical sociology, legal theory, and labour law. Adopting an historical perspective, it explores the fragmentation of the status of industrial citizenship during the neoliberal period and discusses the enduring usefulness of the status/contract distinction in analyzing current trends in the regulation of working relations, including the spread of “gig” or platform-mediated work. Elements of status, it is argued, must always be present if work is to be performed and paid for as the parties require it. Claims to the contrary – for example, that the gig economy creates a labour market without search frictions and only minimal transaction costs: contracts without status – assume an undersocialized model of (monadic) social action that has no basis in the reality of social life (Durkheim, Weber). Still, status may come in a variety of forms that are more or less desirable from the perspective of workers, businesses, and society at large. The paper traces what it conceives as the privatization of status via contracts between employers and workers under the pressure of marketization and dominated by corporate hierarchies. Towards the end of the twentieth century, sociologists observed the division of workers into two groups or classes – core (with relatively well-paid and secure employment) and peripheral (low-paid and insecure). Thirty years later, gross inequalities of wealth and conceptions of the neoliberal self as ever-improving, everperfectible, are combining to create novel forms of status not fully anticipated by the literature.
Topic:
Democracy, Entrepreneurship, Citizenship, Economy, Industry, Contracts, Precarity, and Corporatism
Political Geography:
Global Focus