Business bankruptcies, entrepreneurial failures, unemployment, and salary reductions have been ongoing topics in recent years. Many former business owners have accumulated debts and been forced into becoming “debt defaulters”, while numerous individuals have been blacklisted for credit breaches due to job losses and interrupted mortgage payments. Data shows that in the past five years, China’s personal debt has surged by 50%. Those branded as debt defaulters now number over 8.5 million, a near 50% increase from 5.7 million at the beginning of 2020. These debtors, who have failed to meet their repayment schedules for home or business loans, mostly range in age from 18 to 59 and constitute 1% of China’s workforce.
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Mediation Secrets Exposed: Three Tips You Need to Know
Robert Mnookin

How does cooperation emerge in a condition of international anarchy? Michael Tomz sheds new light on this fundamental question through a study of international debt across three centuries. Tomz develops a reputational theory of cooperation between sovereign governments and foreign investors. He explains how governments acquire reputations in the eyes of investors, and argues that concerns about reputation sustain international lending and repayment.

Tomz’s theory generates novel predictions about the dynamics of cooperation: how investors treat first-time borrowers, how access to credit evolves as debtors become more seasoned, and how countries ascend and descend the reputational ladder by acting contrary to investors’ expectations. Tomz systematically tests his theory and the leading alternatives across three centuries of financial history. His remarkable data, gathered from archives in nine countries, cover all sovereign borrowers. He deftly combines statistical methods, case studies, and content analysis to scrutinize theories from as many angles as possible.

Tomz finds strong support for his reputational theory while challenging prevailing views about sovereign debt. His pathbreaking study shows that, across the centuries, reputations have guided lending and repayment in consistent ways. Moreover, Tomz uncovers surprisingly little evidence of punitive enforcement strategies. Creditors have not compelled borrowers to repay by threatening military retaliation, imposing trade sanctions, or colluding to deprive defaulters of future loans. He concludes by highlighting the implications of his reputational logic for areas beyond sovereign debt, further advancing our understanding of the puzzle of cooperation under anarchy.

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