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Does strengthening Collective Action Clauses (CACs) help?

Sayantan Ghosal and Kannika Thampanishvong

Journal of International Economics, 2013, vol. 89, issue 1, 68-78

Abstract: Does improving creditor coordination by strengthening CACs lead to efficiency gains in the functioning of sovereign bond markets? We address this question in a model featuring both debtor moral hazard and creditor coordination under incomplete information. Conditional on default, we characterize the interim efficient CAC threshold and show that strengthening CACs away from unanimity results in interim welfare gains. However, once the impact of strengthening CACs on debtor's incentives is taken into account, we demonstrate the robust possibility of a conflict between ex ante and interim efficiency. We calibrate our model to quantify such a welfare trade-off and discuss the policy implications of our results.

Keywords: Sovereign debt; Coordination; Moral hazard; Collective Action Clauses; Ex ante; Ex post (search for similar items in EconPapers)
JEL-codes: C72 C78 D82 F34 (search for similar items in EconPapers)
Date: 2013
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Working Paper: Does strengthening Collective Action Clauses (CACs) help? (2010) Downloads
Working Paper: Does strengthening Collective Action Clauses (CACs) help? (2009) Downloads
Working Paper: Does strengthening Collective Action Clauses (CACs) help? (2009) Downloads
Working Paper: Does Strengthening Collective Action Clauses (CACs) Help? (2007) Downloads
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