We examine the effect of speculation using credit derivatives on the cost of debt and the likelihood of default. The availability of credit default swaps induces investors who are optimistic about borrower revenues to sell protection instead of buying bonds. This benefits borrowers if protection...

We develop a model of deliberation under heterogeneous beliefs and incomplete information, and use it to explore questions concerning the aggregation of distributed information and the consequences of social integration. We show that when priors are correlated, all private information is...