Does strengthening collective action clauses (CACs) help?

Ghosal, S. and Thampanishvong, K. (2013) Does strengthening collective action clauses (CACs) help? Journal of International Economics, 89(1), pp. 68-78. (doi:10.1016/j.jinteco.2012.04.003)

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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:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Ghosal, Professor Sayantan
Authors: Ghosal, S., and Thampanishvong, K.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Journal of International Economics
ISSN:0022-1996
ISSN (Online):1873-0353
Published Online:14 April 2012

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