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Does strengthening Collective Action Clauses (CACs) help?

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  • Ghosal, Sayantan

    (Department of Economics, University of Warwick)

  • Thampanishvong, Kannika

    (School of Economics and Finance, University of St Andrews,)

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.

Suggested Citation

  • 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.
    • Handle: RePEc:wrk:warwec:895
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    Cited by:

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    2. Janeba, Eckhard & Steinbach, Armin, 2019. "Compliance effects of sovereign debt cuts," International Review of Law and Economics, Elsevier, vol. 60(C).
    3. Chamon, Marcos & Schumacher, Julian & Trebesch, Christoph, 2018. "Foreign-Law Bonds: Can They Reduce Sovereign Borrowing Costs?," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 114, pages 164-179.
    4. Sönke Häseler, 2009. "Collective Action Clauses In International Sovereign Bond Contracts – Whence The Opposition?," Journal of Economic Surveys, Wiley Blackwell, vol. 23(5), pages 882-923, December.
    5. Mattia Osvaldo Picarelli & Aitor Erce & Xu Jiang, 2019. "The benefits of reducing holdout risk: evidence from the Euro CAC experiment, 2013–2018," Capital Markets Law Journal, Oxford University Press, vol. 14(2), pages 155-177.
    6. Karel Janda, 2009. "Bankruptcies With Soft Budget Constraint," Manchester School, University of Manchester, vol. 77(4), pages 430-460, July.
    7. Ghosal, Sayantan & Miller, Marcus & Thampanishvong, Kannika, 2010. "Delay and Haircuts in Sovereign Debt: Recovery and Sustainability," SIRE Discussion Papers 2010-17, Scottish Institute for Research in Economics (SIRE).
    8. Julian Schumacher & Christoph Trebesch & Henrik Enderlein, 2015. "What Explains Sovereign Debt Litigation?," Journal of Law and Economics, University of Chicago Press, vol. 58(3).
    9. Nicoletta Layher & Eyden Samunderu, 2020. "The Impact of the Introduction of Uniform European Collective Action Clauses on European Government Bonds as a Regulatory Result of the European Sovereign Debt Crisis," JRFM, MDPI, vol. 14(1), pages 1-32, December.
    10. Sayantan Ghosal & Marcus Miller & Kannika Thampanishvong, 2019. "Waiting for a haircut? A bargaining perspective on sovereign debt restructuring," Oxford Economic Papers, Oxford University Press, vol. 71(2), pages 405-420.
    11. Ran Bi & Marcos Chamon & Jeromin Zettelmeyer, 2016. "The Problem that Wasn’t: Coordination Failures in Sovereign Debt Restructurings," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(3), pages 471-501, August.
    12. Bai, Ye & Banerji, Sanjay & Wang, Zilong & Zhang, Wenjing, 2024. "Can participation in IMF programs facilitate sovereign debt rescheduling? The role of program size," Journal of International Money and Finance, Elsevier, vol. 144(C).
    13. Aitor Erce, 2013. "Sovereign debt crises: could an international court minimize them?," Globalization Institute Working Papers 142, Federal Reserve Bank of Dallas.
    14. 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.
    15. Bardozzetti, Alfredo & Dottori, Davide, 2014. "Collective action clauses: How do they affect sovereign bond yields?," Journal of International Economics, Elsevier, vol. 92(2), pages 286-303.

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    More about this item

    Keywords

    Sovereign Debt ; Coordination ; Moral Hazard ; Collective Action Clauses ; Ex Ante ; Ex Post ; Efficiency;
    All these keywords.

    JEL classification:

    • 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

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