Comment on “Strategic Behavior in Sovereign Debt Restructuring: Impact and Policy Responses” by Rohan Pitchford and Mark L.J. Wright

The paper presents a simplified version of the model of debt renegotiation developed in Pitchford and Wright (2012). The benchmark model develops how strategic holdup appears when there is a potential gain in being the last creditor who negotiates, and how this gain exists as long as the way in which the game is developed makes the last creditor negotiate over a bigger pie. The authors apply this concept to sovereign debt restructuring. The model is very interesting in terms of the application and also in terms of the theory. It generates delay in equilibrium which is consistent with the data. Moreover, under reasonable conditions the bigger the number of creditors, the longer the delay. The paper also studies how different rules and other configuration characteristics of the problem (the number of creditors, Collective Action Clauses and the presence of secondary markets or vulture creditors) change the equilibrium outcomes, in particular the length of the delay.