Does Strengthening Collective Action Clauses (CACs) Help?
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.Download Info
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Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 0711.Length:
Date of creation: Jun 2007
Date of revision: Oct 2007
Handle: RePEc:san:cdmawp:0711
Note: This paper was previously circulated with the title ‘Bargaining, Moral Hazard and Sovereign Debt Crisis’.
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Keywords: Sovereign Debt; Bargaining; Coordination; Moral Hazard; Collective Action Clauses.;Other versions of this item:
- Ghosal, Sayantan & Thampanishvong, Kannika, 2013. "Does strengthening Collective Action Clauses (CACs) help?," Journal of International Economics, Elsevier, vol. 89(1), pages 68-78.
- Ghosal, Sayantan; Thampanishvong, Kannika, 2010. "Does strengthening Collective Action Clauses (CACs) help?," CAGE Online Working Paper Series 29, Competitive Advantage in the Global Economy (CAGE).
- Ghosal, Sayantan & Thampanishvong, Kannika, 2009. "Does strengthening Collective Action Clauses (CACs) help?," The Warwick Economics Research Paper Series (TWERPS) 895, University of Warwick, Department of Economics.
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-06-18 (All new papers)
- NEP-GTH-2007-06-18 (Game Theory)
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Sayantan Ghosal & Marcus Miller & Kannika Thampanishvong, 2010.
"Delay and Haircuts in Sovereign Debt: Recovery and Sustainability,"
Discussion Paper Series, Department of Economics
1004, Department of Economics, University of St. Andrews.
- Sayantan Ghosal & Marcus Miller & Kannika Thampanishvong, 2010. " Delay and Haircuts in Sovereign Debt: Recovery and Sustainability," CDMA Working Paper Series 1015, Centre for Dynamic Macroeconomic Analysis.
- Ghosal, Sayantan & Miller, Marcus & Thampanishvong, Kannika, 2010. "Delay and Haircuts in Sovereign Debt: Recovery and Sustainability," SIRE Discussion Papers 2010-100, Scottish Institute for Research in Economics (SIRE).
- Alfredo Bardozzetti & Davide Dottori, 2013. "Collective action clauses: how do they weigh on sovereigns?," Temi di discussione (Economic working papers) 897, Bank of Italy, Economic Research and International Relations Area.
- Karel Janda, 2009. "Bankruptcies With Soft Budget Constraint," Manchester School, University of Manchester, vol. 77(4), pages 430-460, 07.
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