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Does strengthening Collective Action Clauses (CACs) help?

Sayantan Ghosal

CAGE Online Working Paper Series from Competitive Advantage in the Global Economy (CAGE)

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 are 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-o¤ and discuss the policy implications of our results.

Keywords: Sovereign Debt; Coordination; Moral Hazard; Collective Action Clauses; Ex Ante; Ex Post; Efficiency (search for similar items in EconPapers)
Date: 2010
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http://www2.warwick.ac.uk/fac/soc/economics/resear ... s/29.2010_ghosal.pdf

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Journal Article: Does strengthening Collective Action Clauses (CACs) help? (2013) 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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