Ghosal, Sayantan and Thampanishvong, Kannika (2013) Does strengthening Collective Action Clauses (CACs) help? Journal of International Economics, Volume 89 (Number 1). pp. 68-78. doi:10.1016/j.jinteco.2012.04.003 ISSN 0022-1996.

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Abstract

Does improving creditor coordination by strengthening CACs lead to efficiency gains in the functioning of sovereign bond markets? We address this question in a model featuring both debtor moral hazard and creditor coordination under incomplete information. Conditional on default, we characterize the interim efficient CAC threshold and show that strengthening CACs away from unanimity results in interim welfare gains. However, once the impact of strengthening CACs on debtor's incentives is taken into account, we demonstrate the robust possibility of a conflict between ex ante and interim efficiency. We calibrate our model to quantify such a welfare trade-off and discuss the policy implications of our results.

Item Type:	Journal Article
Subjects:	H Social Sciences > HB Economic Theory
Divisions:	Faculty of Social Sciences > Economics
Journal or Publication Title:	Journal of International Economics
Publisher:	Elsevier BV
ISSN:	0022-1996
Official Date:	January 2013
Dates:	Date Event January 2013 Published
Volume:	Volume 89
Number:	Number 1
Page Range:	pp. 68-78
DOI:	10.1016/j.jinteco.2012.04.003
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Restricted or Subscription Access
Funder:	Economic and Social Research Council (ESRC)
Grant number:	RES 156-25-0032

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