Staff Report 137

Back to Publication

Reputation With Multiple Relationships: Revising Reputation Models of Debt

Harold L. Cole - Consultant
Patrick J. Kehoe

Published March 1, 1991

Abstract
A traditional explanation for why sovereign governments repay debts is that they want to keep a good reputation so they can easily borrow more. Bulow and Rogoff have challenged this explanation. They argue that, in complete information models, government borrowing requires direct legal sanctions. We argue that, in incomplete information models with multiple trust relationships, large amounts of government borrowing can be supported by reputation alone.


Download Paper (PDF)