Legal Scholars Advance the Principle of Odious Debts

A Law-and-Economics Analysis of Odious Debts

(February 7, 2007)

Stephania Bonilla
Columbia University – Columbia Law School; University of Hamburg – Doctoral College of Law and Economics
Wednesday, February 7, 2007
Abstract: Much of the debate surrounding odious debts begs the question of whether the ‘odiousness’ of a debt can serve as a qualification for the rule of state succession. The legal and economics rationales of the rule date back to the classical writings on the subject and can be derived from state practice.

Law and economics can provide insight into why such a qualification is not part of the short list of exceptions to the rule, and why it will likely not be added to the list any time soon. This paper offers some preliminary law-and-economics insight into this question using the economic analysis of contracts. Some of the trends in the recent odious debt literature are discussed. Firstly, there has been a shift from adhering to the doctrine of odious debts to addressing the problem of odious debts itself. Secondly, there is a divergence between those seeking to label odious regimes and those seeking to identify odious loans/debts. Third, there is a shift from taking the perspective of developing countries, to focusing on what developed countries have to gain from addressing odious debts. Finally, using Steven Shavell’s analysis of ex ante regulation versus ex post liability, the obstacles to finding an efficient solution to odious debts are highlighted.

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