Coordination failure, moral hazard and bankruptcy procedures

Ghosal, S. and Miller, M. (2003) Coordination failure, moral hazard and bankruptcy procedures. Economic Journal, 113(487), pp. 276-304. (doi:10.1111/1468-0297.00125)

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Abstract

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 which some promote as an alternative.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Ghosal, Professor Sayantan
Authors: Ghosal, S., and Miller, M.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Economic Journal
ISSN:0013-0133
ISSN (Online):1468-0297
Published Online:23 April 2003

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