Coordination Failure, Moral Hazard and Sovereign Bankruptcy Procedures

Marcus Miller and Sayantan Ghosal

No 3729, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study a model of sovereign debt crisis that combines problems of creditor co-ordination and debtor moral hazard. Solving the sovereign debtor?s incentives leads to excessive ?rollover failure? by creditors when sovereign default occurs. We discuss how the incidence of crises might be reduced by international sovereign bankruptcy procedures, involving ?contractibility? of sovereign debtor?s payoffs, suspension of convertibility in a ?discovery? phase and penalties in case of malfeasance. In relation to the current debate, this is more akin to the IMF?s Sovereign Debt Restructuring Mechanism than the Collective Action Clauses which some promote as an alternative.

Keywords: International financial architecture; Sovereign debt restructuring; Creditor coordination; Moral hazard (search for similar items in EconPapers)
JEL-codes: F02 F30 F33 F34 (search for similar items in EconPapers)
Date: 2003-02
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Citations: View citations in EconPapers (26)

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Journal Article: Co-ordination Failure, Moral Hazard and Sovereign Bankruptcy Procedures (2003)
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