WHITEFLAG

Plain English: A number from 0 to 1 measuring how concentrated creditors are. 0 = perfectly diversified (many small creditors), 1 = monopoly (one creditor). Used to determine if any single creditor has "veto power."

Technical Definition: Sum of squared market shares of each creditor. In debt context: HHI = Σ(creditor_share_i)²

Example: Sri Lanka has HHI = 0.38 (high). Germany has HHI = 0.09 (low). Higher HHI = creditor has more power.

Plain English: A number from 0 to 1 measuring how much a buyer can force down the price using military advantage. 1.0 = full price (can't coerce), 0.15 = 85% discount (buyer is much stronger militarily).

Based On: Fearon (1995) bargaining model of war. If buyer can probably win militarily and invasion costs are low, buyer gets discount. If seller has strong allies or nuclear weapons, CDF → 1.0 (no discount).

Interpretation: NATO members: CDF ≈ 1.0 (full price, alliance shield)
Unaligned, buyer military >> seller: CDF ≈ 0.15 (huge discount)
Nuclear powers: CDF = 1.0 (impossible to coerce)

Plain English: Percentage of skilled workers (0-90%) expected to flee if country is forcibly acquired. Range: 5% for voluntary merger → 70% for military conquest.

Why It Matters: Human capital is mobile, unlike land. Doctors, engineers, scientists flee hostile acquisitions. Buyer sees lower actual value than raw human capital calculation suggests.

By Scenario: Voluntary: 5% flee | Negotiated: 15% | Contested: 40% | Military: 60% | Regime change: 70%

Real Example: Cuba 1959: 14% of professional class emigrated. Venezuela 2015-2023: 80% of oil engineers left.

Plain English: Measurement of how much power creditors have as a group. Concentrated (one or two creditors) = lots of power. Diversified (many creditors) = less power.

Measurement: HHI Index. Concentration > 0.25 means single creditor likely has veto power on restructuring.

Strategic Implication: Sri Lanka's China 55% debt = China can seize collateral (Hambantota Port seized 2017). Germany's diversified 78% private debt = buyer can easily refinance.

Plain English: A way to value human capital by calculating the present value of all future earnings. More detailed than just "population × average wage."

How It Works: For each person, calculate their lifetime earnings stream by age and education, discount to present value. Sum for entire population.

Why We Use It: Accounts for education differences, survival rates, income growth. Used by World Bank, OECD.

Data Needed: Age structure, education levels, wage data, survival rates, school enrollment rates.

Plain English: Classification of how much it will cost to integrate an acquired country. Four scenarios: Willing ($120/capita/year), Negotiated ($350), Contested ($1,200), Hostile ($4,000+).

Factors Determining Scenario: Fragile States Index (governance capacity), ethnic fragmentation, historical occupation resistance, local elite cooperation, international support for rebels.

Historical Precedents: Willing = Singapore 1965
Negotiated = Ireland 1922
Contested = Poland 1945
Hostile = Iraq 2003, Afghanistan 2001-2021

Plain English: Factor by which we multiply nominal debt to reflect creditor power. 1.0 = no adjustment, 1.22 = +22% penalty for concentrated debt.

Formula: Multiplier = 1.0 + HHI_factor + Strategic_bonus + Conditionality_adjustment
Range: 0.95 (−5%) to 1.25 (+25%)

Why Applied: Concentrated debt means creditors have veto power, making restructuring harder. Buyer must pay implicit premium for this constraint.

Example: Sri Lanka $56B debt × 1.22 = $68.4B adjusted liability. The extra $12.4B reflects China's 55% holding and veto power.

Plain English: When a country is acquired, its alliance memberships (NATO, EU, BRICS) are lost by the acquirer unless they're already members. Value "strands" = becomes inaccessible.

Legal Basis: 1978 Vienna Convention: Alliance memberships do NOT transfer to successors in territorial disputes. Each alliance is a separate treaty requiring admission.

Quantified Value Lost: NATO membership worth +15-51% GDP premium. EU membership worth +9-22% GDP. If China acquires Poland, these values disappear.

Example: Poland (NATO + EU) stranding value ≈ $250B if acquired by hostile power. Buyer gets territory but not the alliances.

Plain English: Algorithm predicting likelihood that Country A will try to acquire Country B. Based on strategic motivation (resources, proximity) and military feasibility.

Four Components: 1. Strategic Impulse (resources + proximity + chokepoints)
2. Coercion Feasibility (can buyer force it?)
3. Integration Friction (alliance compatibility)
4. Uncertainty Index (data quality)

Output: Viability score 0-1 (e.g., 0.28 = moderate strategic interest). Note: These are composite indices for relative comparison, not calibrated probabilities. A 28% score does not mean "28% chance of acquisition."

Plain English: Difference between what seller thinks country is worth vs. what buyer will actually pay. Seller sees human capital; buyer sees brain drain. Seller sees alliance value; buyer sees stranding.

Why It Exists: Seller owns the territory + alliances + full human capital. Buyer inherits territory only (in hostile scenario). Gap reflects value destruction.

Example: Germany valued at $2T (seller view, includes NATO/EU). If China buys hostilely: Buyer sees $1.1T (after alliance stranding, brain drain, integration costs). Gap = $900B value destruction.

Plain English: Score 0-1 measuring how stable/functional a country is. 0 = most stable (US, Switzerland), 1 = most fragile (Syria, Yemen, Afghanistan).

Factors: Government stability, economic conditions, conflict history, ethnic tensions, corruption, institutional capacity.

How We Use It: FSI > 0.8 = integration will be hostile/contested (high cost). FSI < 0.4 = willing integration possible (low cost).

Example: Afghanistan FSI = 0.92 (most fragile) → Hostile integration scenario ($4,000/capita/year)
Germany FSI = 0.26 (very stable) → Willing integration possible ($120/capita/year)

Plain English: Geographic location where large % of global trade passes and can be blocked. Examples: Suez Canal (15% of maritime trade), Panama Canal (5%), Malacca Strait (20%).

Valuation: Annual toll/rent revenue × 15-year NPV. Suez Canal worth ~$97B strategically due to annual $6.5B toll revenue and blockade risk.

Strategic Leverage: Country controlling chokepoint has leverage over global commerce. Singapore's location has strategic value ~$300-350B beyond GDP valuation.

Plain English: How well a country's government, legal system, and institutions function. Strong institutions → assets worth more. Fragile institutions → assets worth less.

Measurement: World Governance Indicators (6 measures): Rule of Law, Control of Corruption, Government Effectiveness, Regulatory Quality, Voice & Accountability, Political Stability.

Applied As Multiplier: Strong institutions: 1.2-1.5× multiplier. Fragile: 0.3-0.7× multiplier. Affects valuation of assets + liabilities both.

Example: $100B of assets in Switzerland (strong institutions) worth more than $100B in Zimbabwe (weak institutions).

Plain English: Legal theory that debt incurred by an illegitimate regime for purposes contrary to the nation's interests can be repudiated (not paid) by successor governments.

Historical Examples: Soviet Russia repudiated Tsarist bonds (1918). Cuba repudiated pre-revolution debt (1959). Iraq wrote off 80% of Saddam-era debt (2003).

In WHITEFLAG: We calculate "debt assumption probability" by scenario. Military conquest scenario: buyer may repudiate 60-85% of debt. Voluntary transfer: buyer assumes 95%+ of debt.

Implication: From buyer's perspective, debt may be optional liability, not required payment. Affects valuation in hostile acquisition scenarios.

Plain English: Motivation for Country A to want to acquire Country B. Based on: Does target have resources A wants? Is it nearby? Does it control chokepoint?

Formula: I_s = (0.4 × Resource_Delta) + (0.3 × Proximity) + (0.3 × Chokepoint_Value)
Range: 0 to 1

Interpretation: 0-0.25: Low impulse (not tempting)
0.25-0.50: Moderate (geographically interesting)
0.50+: High (strategic necessity)

Plain English: 0-100 scale measuring political instability in a country. Higher score = more stable. Lower score = more chaotic.

Factors: Government stability, corruption, internal conflict, external conflict, democratic accountability, law enforcement.

Data Source: International Country Risk Guide (ICRG) by PRS Group.

Applied In Valuation: Higher political risk = lower valuation (more uncertainty, higher integration cost).

Plain English: Economic value of a country's workforce. Not just "population" but productive capacity, education, skills, health.

Why It Matters: Human capital often constitutes 60% of national wealth (World Bank). More valuable than land or natural resources in developed nations.

How Calculated: Jorgenson-Fraumeni method: discounted lifetime earnings by age, education, survival rate.

In Hostile Acquisition: Subject to brain drain: 40-70% of skilled workers flee. Actual human capital buyer receives may be 30-60% of calculated value.

Plain English: Likelihood of each scenario occurring (Best = willing, Base = contested, Worst = hostile). Used to calculate expected valuation.

How Determined: Based on Fragile States Index, alliance membership, historical precedent, institutional capacity.

Example: Germany: 60% Base (contested), 25% Best (willing), 15% Worst (hostile)
Afghanistan: 5% Best, 15% Base, 80% Worst (hostile)

Expected Value: Σ(Scenario_Value × Scenario_Probability) = probability-weighted average

Plain English: How sure we are about a data point. 95% = very sure (official IMF data). 50% = speculative (integration cost estimate).

By Data Type: Sovereign debt 95% (official)
GDP 90% (official)
Creditor composition 75% (estimated)
Natural resources 60% (volatile)
Integration costs 50% (precedent-based)

How to Interpret: Low confidence doesn't mean wrong, just uncertain. Use scenario ranges to capture uncertainty.

Primary Sources (Free): IMF International Debt Statistics, World Bank Debtor Reporting System, USGS Mineral Commodity Summaries, UCDP Conflict Database, Fragile States Index.

Frequency: Most updated annually or semi-annually. Check data_provenance field for last update date.

Why Credible: All sources are official government statistics or peer-reviewed databases. Not proprietary algorithms.