Published in:NYU Law and Economics Research Paper ; No. 17-29
Extent:
1 Online-Ressource (39 p)
Language:
English
DOI:
10.2139/ssrn.3016604
Identifier:
Origination:
Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments August 9, 2017 erstellt
Description:
The ambiguous phrasing of pari passu (equal treatment) clauses in sovereign debt contracts has long baffled commentators. We show that in the presence of asymmetric information on a sovereign borrower's ability to pay, an uncertain clause gives rise to a collective action problem among creditors that can reduce sovereign moral hazard. By varying the clause, parties can calibrate a sovereign's expected default costs and payments to creditors and thereby optimally trade off the sovereign's moral hazard and (deadweight) default costs. As information asymmetry decreases, a pari passu clause becomes a coarser instrument for configuring creditors' incentives and mitigating moral hazard