We study the interaction between (a) inefficiencies in the post-default debtor-creditor bargaining game and (b) ex ante debtor moral hazard and excessive lending in sovereign debt markets. Conditional on default, selffulfilling debt crisis driven by creditor coordination failure exists and crisis risk is inefficiently high. Strengthening collective action clauses (CACs) has an ambiguous impact ...

background previous studies have mostly focused on socio-demographic and health-related determinants of health-related behaviors. although comprehensive health insurance coverage could discourage individual lifestyle improvement due to the ex-ante moral hazard problem, few studies have examined such effects. this study examines the association of a comprehensive set of factors including socio-d...

In a model with both issues of sovereign debtor moral hazard and creditor coordination under incomplete information, we show that the resulting con‡ict between ex ante and interim e¢ ciency limits the welfare impact of strengthening CACs. Conditional on default, we show that an interim e¢ cient CAC threshold exists and improving creditor coordination results in welfare gains. However, when ex a...

This paper presents a principal-agent model of IMF conditional lending, in the aftermath of a “capital-account” liquidity crisis. We show that traditional ex-post conditionality can be e¤ective in safeguarding the Fund’s resources, allowing for the provision of e¢cient emergency lending and reducing ine¢cient ex-ante credit rationing if the capital out‡ow which triggers the crisis is not excess...

We study banking with ex ante moral hazard. Resolving the mis-alignment of the incentives between banks and depositors requires early liquidation with positive probability: e¢cient risk-sharing between depositors is no longer implementable. In a closed region with a single bank, we show that (i) with costless and perfect monitoring, contracts with bank runs o¤ the equilibrium path of play impro...

Protection buyers share risk with protection sellers, whose assets are only imperfectly pledgeable because of moral hazard. To mitigate moral hazard, privately optimal contracts involve variation margins. When margins are called, protection sellers must sell some of their assets to other investors. We analyse, in a general equilibrium framework, whether this leads to ine¢ cient …re sales. If ma...

It is well-known that pooled insurance coverage can induce people to make inefficiently low investments in self-protective activities. We identify another ex ante moral hazard that runs in the opposite direction. Lower levels of self-protection and the associated chronic conditions and behavioral patterns such as obesity, smoking, and malnutrition increase the incidence of many diseases and con...

We consider a moral hazard setup wherein leveraged firms have incentives to take on excessive risks and are thus rationed when they attempt to borrow in order to meet liquidity shocks. The rationed firms can optimally pledge cash as collateral to borrow more, but in the process must liquidate some of their assets. Liquidated assets are purchased by non-rationed firms but their borrowing capacit...