Sovereign Debt and the Siren's Song

Anything I can do.....

....Roger Myerson can do better.

The Autocrat's Credibility Problem and Foundations of the Constitutional
State

Roger Myerson
American Political Science Review, February 2008, Pages 125-139

Abstract:
A political leader's temptation to deny costly debts to past supporters is a central moral-hazard problem in politics. This paper develops a game-theoretic model to probe the consequences of this moral-hazard problem for leaders who compete to establish political regimes. In contests for power, absolute leaders who are not subject to third-party judgments can credibly recruit only limited support. A leader can do better by organizing supporters into a court which could cause his downfall. In global negotiation-proof equilibria, leaders cannot recruit any supporters without such constitutional checks. Egalitarian norms make recruiting costlier in oligarchies, which become weaker than monarchies. The ruler's power and limitations on entry of new leaders are derived from focal-point effects in games with multiple equilibria. The relationships of trust between leaders and their supporters are personal constitutions which underlie all other political constitutions.

(PDF, if your university or library subscribes)

(nod to KL)