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- Title
The role of lender behavior in international project finance.
- Authors
Altug, Sumru; Ozler, Sule; Usman, Murat
- Abstract
A sovereign borrower seeks to raise funds internationally to finance a fixed-size project, which no single lender can finance alone. Lenders cannot lend more than their endowments, which are private information. A coordination failure arises; therefore, some socially desirable projects may not be financed, even if ex post feasible. There are multiple equilibria, and a conflict exists between lenders about which equilibrium to coordinate on. When endowments are volatile, some lenders prefer an equilibrium in which the project is financed with probability p < 1, even if ex post feasible. The government eliminates such equilibria by offering a sufficiently high return, only if endowment volatility is small.
- Subjects
FOREIGN loans; INTERNATIONAL finance
- Publication
Economic Theory, 2002, Vol 19, Issue 3, p571
- ISSN
0938-2259
- Publication type
Article
- DOI
10.1007/s001990000159