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Does Strengthening Collective Action Clauses (CACs) Help?

Sayantan Ghosal and Kannika Thampanishvong

No 200711, CDMA Working Paper Series from Centre for Dynamic Macroeconomic Analysis

Abstract: We study the effect of strengthening CACs in a debt rollover model of a sovereign debt crisis. Conditional on default, there are multiple equilibria: the impact of strengthening CACs depends critically on the prevailing equilibrium. For a subset of equilibria, (i) given a fixed number of creditors, we derive an optimal CAC threshold and (ii) given a fixed CAC threshold, as the number of creditors becomes larger, we show a convergence to efficient information aggregation. Moreover, strengthening CACs may actually increase the ex ante probability of adverse shock. Our analysis makes the case for a formal sovereign bankruptcy procedure.

Keywords: Sovereign Debt; Bargaining; Coordination; Moral Hazard; Collective Action Clauses. (search for similar items in EconPapers)
JEL-codes: C72 C78 D82 F34 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth
Date: 2007-06-15, Revised 2007-10-15
Note: This paper was previously circulated with the title ‘Bargaining, Moral Hazard and Sovereign Debt Crisis’.
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Related works:
Journal Article: Does strengthening Collective Action Clauses (CACs) help? (2013) Downloads
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
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