Abstract
I consider models were bargaining costs between debtors and creditors are large when debts are large. The reason is that creditors are willing to spend more resources convincing the debtor that they are tough when they have more at stake. Also, the sanctions which are sometimes triggered when bargaining fails to produce an agreement are larger when debts are larger. In both cases debt repurchases by highly indebted sovereign nations can be advantageous for all parties. Moreover, donors who subsidize buybacks can increase overall welfare more than donors who make direct gifts.
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