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Does strengthening Collective Action Clauses (CACs) help?

Sayantan Ghosal and Kannika Thampanishvong

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: In a model with both issues of sovereign debtor moral hazard and creditor coordination under incomplete information, we show that the resulting conflict between ex ante and interim efficiency limits the welfare impact of strengthening CACs. Conditional on default, we show that an interim efficient CAC threshold exists and improving creditor coordination results in welfare gains. However, when ex ante efficiency requires the sovereign debtor to choose actions that reduce the probability of default, improved creditor coordination reduces ex ante efficiency and the interim efficient CAC threshold is higher than the ex ante efficient CAC threshold.

Keywords: Sovereign Debt; Coordination; Moral Hazard; Collective Action Clauses; Ex Ante; Ex Post; Efficiency (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-cdm and nep-cta
Date: 2009
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Citations: View citations in EconPapers (18) Track citations by RSS feed

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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? (2007) Downloads
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