Co-ordination failure, moral hazard and sovereign bankruptcy procedures
Ghosal, Sayantan and Miller, Marcus (2003) Co-ordination failure, moral hazard and sovereign bankruptcy procedures. Working Paper. Coventry: University of Warwick. Centre for the Study of Globalisation and Regionalisation. Working papers (University of Warwick. Centre for the Study of Globalisation and Regionalisation) (No.112).
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We study a model of sovereign debt crisis that combines problems of creditor co-ordination and debtor moral hazard. Solving the sovereign debtor’s incentives leads to excessive ‘rollover failure’ by creditors when sovereign default occurs. We discuss how the incidence of crises might be reduced by international sovereign bankruptcy procedures, involving ‘contractibility’ of sovereign debtor’s payoffs, suspension of convertibility in a ‘discovery’ phase and penalties in case of malfeasance. In relation to the current debate, this is more akin to the IMF’s Sovereign Debt Restructuring Mechanism than the Collective Action Clauses promoted by others.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HB Economic Theory
H Social Sciences > HJ Public Finance
|Divisions:||Faculty of Social Sciences > Economics
Faculty of Social Sciences > Centre for the Study of Globalisation and Regionalisation
|Library of Congress Subject Headings (LCSH):||Debts, Public, Moral hazard, State bankruptcy, International finance, Debtor and creditor|
|Series Name:||Working papers (University of Warwick. Centre for the Study of Globalisation and Regionalisation)|
|Publisher:||University of Warwick. Centre for the Study of Globalisation and Regionalisation|
|Place of Publication:||Coventry|
|Official Date:||March 2003|
|Number of Pages:||36|
|Institution:||University of Warwick|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
|Funder:||Economic and Social Research Council (Great Britain) (ESRC), University of Warwick. Centre for the Study of Globalisation and Regionalisation (CSGR)|
|Grant number:||R000239216 (ESRC)|
 Aghion, Ph., Ph. Bacchetta and A. Banerjee (2000), ‘A Simple Model of Monetary Policy and Currency Crises’, European Economic Review, vol. 44, pp.728-38.
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