TY  - JOUR
AU  - Fernandez,Raquel
AU  - Glazer,Jacob
TI  - The Scope for Collusive Behavior Among Debtor Countries
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2980
PY  - 1989
Y2  - May 1989
UR  - http://www.nber.org/papers/w2980
L1  - http://www.nber.org/papers/w2980.pdf
N1  - Author contact info:
Raquel Fernández
Department of Economics
New York University
19 West 4th Street, 6th Floor
New York, NY  10012
Tel: 212/998-8908
Fax: 212/995-4186
E-Mail: raquel.fernandez@nyu.edu

Jacob Glazer
Department of Economics
Boston University
270 Bay State Road, Room 553
Boston, MA 02215
Tel: 617-353-6323
Fax: 617-353-4449
E-Mail: glazerj@bu.edu
AB  - We study the question of whether there exist strategies whereby countries are able to sustain a cartel or collusive behavior when bargaining with a bank over the amount of debt to be repaid. We show that despite the existence of economies to scale in bargaining--if commitment were possible the countries would benefit from joint bargaining--a debtors' cartel will not emerge in equilibrium (in the absence of credible commitment mechanisms). A unique subgame-perfect equilibrium exists in which the bank is effectively able to isolate each country and extract from each the same payoff that it would obtain in the absence of economies to scale. Consequently, a country would be better off if another country declared default. We also show that if two countries of unequal size are bargaining with a bank, in equilibrium a decrease in the size of the smaller country implies a greater payoff to the large country although the payoff to the small country is invariant.
ER  -