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
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0022199612000621
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Does strengthening Collective Action Clauses (CACs) help? (2010)
Working Paper: Does strengthening Collective Action Clauses (CACs) help? (2009)
Working Paper: Does strengthening Collective Action Clauses (CACs) help? (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:89:y:2013:i:1:p:68-78

DOI: 10.1016/j.jinteco.2012.04.003

Access Statistics for this article

Journal of International Economics is currently edited by Gourinchas, Pierre-Olivier and Rodríguez-Clare, Andrés

More articles in Journal of International Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().