why is there no contingent debt today?

(except by defaulting countries like Greece and Argentina). If you want to find out, you can do worse than read:

Drelichman, Mauricio and Hans-Joachim Voth, "Contingent Sovereign Debt Contracts: The Historical Perspective", CESifo DICE Report 

Punchline: Philip II managed to do it - so why can't modern-day treasury departments and investment banks do what Genoese financiers and courtiers in tights got done to perfection?

Massacre Memories and German Car Sales

Do boycotts ever work? The Euro crisis certainly made a lot of Greeks unhappy. They promptly blamed the Germans, resulting in calls for boycott. Now, the typical result in the literature is that there isn't much of a reaction -- consumers don't on average vote with their pocket books. People want what they want, and they aren't going to change their purchases much for political reasons. Most research on US consumer behavior after the US invasion of Iraq - inexplicably not supported by the French - found no clear reduction in French wine sales in the US, for example.

Together with my PhD student Vasiliki Fouka, I thought I'd try and see if there wasn't a noticeable decline in German sales in Greece. We focus on cars - these are big ticket items, and arguably very "Teutonic". Our key finding is that sales of German cars slowed, but the pattern differed by province -- in areas where German army units and the SS committed massacres during the occupation of Greece, there was a much bigger slump.

Here is the abstract of our working paper:

During the Greek debt crisis after 2010, the German government insisted on  harsh austerity measures. This led to a rapid cooling of relations between the Greek and German governments. We compile a new index of public acrimony between Germany and Greece based on newspaper reports and internet search terms. This information is combined with historical maps on German war crimes during the occupation between 1941 and 1944. During months of open conflict between German and Greek politicians,   German car sales fell markedly more than those of cars from other countries. This was especially true in areas affected by German reprisals during World War II: areas where German troops committed massacres and destroyed entire villages curtailed their purchases of German cars to a  greater extent during conflict months than other parts of Greece. We conclude that cultural aversion was a key determinant of purchasing behavior, and that memories of past conflict can affect economic choices in a time-varying fashion. These findings are compatible with behavioral models emphasizing the importance of salience for individual decision-making.

The working paper is on SSRN and at CEPR. If you happen to be in the Cambridge area - you can hear Vicky on Monday, October 18th, at the Harvard Economic History Tea.

Congratulations

to my PhD student Marc Goni Trafach, who has just won the UPF Teaching Award. Did I mention he is on the market this year?

You can watch

the testimonials accumulate for Mauricio's and my book over at the  facebook page for Lending to the Borrower of Hell (coming in early 2013 to a bookseller near you).

Inet interview

on the Spanish crisis. Keep in mind that this was taped in April of this year...

The first experimental paper in economic history

... hits the working paper stage. I meant to do this for... ? maybe a decade? Anyway, I finally found the right co-authors, time, and money to do it. I always loved the elegance of experimental economics; no problem with internal validity here. What do we learn? A lot, in general, but external validity can be an issue... So why and how to apply this to history? The idea is simple, actually - instead of using market conditions in the lab that are at best loose metaphors for financial markets, we use concrete, detailed features of a historical asset market where things really went wrong: the market for South Sea shares in 1720. We then switch of these features one by one, in a bid to pin down what was really responsible for the "mother of all bubbles". The paper is over at SSRN and the abstract is

Major bubble episodes are rare events. In this paper, we examine what factors might cause some asset price bubbles to become very large. We recreate, in a laboratory setting, some of the specific institutional features investors in the South Sea Company faced in 1720. Several factors have been proposed as potentially contributing to one of the greatest periods of asset overvaluation in history: an intricate debt-for-equity swap, deferred payment for these shares, and the possibility of default on the deferred payments. We consider which aspect might have had the most impact in creating the South Sea bubble. The results of the experiment suggest that the company’s attempt to exchange its shares for government debt was the single biggest contributor to the stock price explosion, because of the manner in which the swap affected fundamental value. Issuing new shares with only partial payments required, in conjunction with the debt-equity swap, also had a significant effect on the size of the bubble. Limited contract enforcement, on the other hand, does not appear to have contributed significantly.

The Wall Street Journal

interviewed Robert Putnam to see what he thought of Nico Voigtländer's, Shanker Satyanath's and my study on association density and the rise of the Nazi Party, where we show that towns and cities with more singing, hiking, and animal breeding clubs also had many more people joining the Hitler movement... apparently Putnam thought that social capital is still a good thing for democracy on average. You can read the small article here.