Ghosal, Sayantan and Thampanishvong, Kannika (2009) Does strengthening Collective Action Clauses (CACs) help? Working Paper. Coventry: University of Warwick, Department of Economics. (Warwick economic research papers.

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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.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HJ Public Finance
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Noncooperative games (Mathematics), Debts, Public, Collective bargaining, Information asymmetry, Capital movements
Series Name:	Warwick economic research papers
Publisher:	University of Warwick, Department of Economics
Place of Publication:	Coventry
Date:	10 March 2009
Number:	No.895
Number of Pages:	22
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
Funder:	Economic and Social Research Council (Great Britain) (ESRC)
Grant number:	RES 156-25-0032 (ESRC)
Available As:	Ghosal, S. and Thampanishvong, K. (2007). Does Strengthening Collective Action Clauses (CACs) Help? [St. Andrews] : University of St. Andrews, Department of Economics & Finance, Centre for Dynamic Macroeconomic Analysis. (CDMA working paper no.07/11).
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URI:	http://wrap.warwick.ac.uk/id/eprint/1322

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