A rule-based decision analytics approach to sovereign debt restructuring under constrained equal awards and equilibrium restoration

This paper examines sovereign debt restructuring as a decision problem over institutional rules. Creditors simultaneously choose contractual face values, the state of nature is realized, and the debtor then chooses repayment or default. In default, claims are allocated according to the constrained equal awards (CEA) rule. The model shows how a repayment cutoff and a bankruptcy allocation rule jointly create payoff discontinuities in the creditors’ strategic environment. Small changes in aggregate promised claims may then produce discrete shifts in repayment, default, and social hardship. The contribution to decision analytics lies in recasting a stylized sovereign debt game as a rule-evaluation problem. The institutional designer evaluates legal and contractual mappings according to their effects on ex ante incentives, equilibrium existence, and the avoidance of good-state default. We show that pure-strategy equilibrium properties depend on the parameter configuration and on the mapping from promised claims to realized repayments. Some regions support repayment-compatible equilibrium; other regions generate equilibrium fragility through the interaction between the cutoff and CEA. A stylized scaling clause is then introduced as a prescriptive benchmark that restores good-state repayment by proportionally scaling enforceable obligations. The analysis yields an institutional decision map for identifying when a bankruptcy rule stabilizes contracting incentives and when additional restructuring mechanisms are required. The paper connects discontinuous games, bankruptcy allocation, and prescriptive analytics in the design of sovereign debt institutions.