The role of lender behavior in international project finance |
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Authors: | Sumru Altug Sule Ozler Murat Usman |
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Affiliation: | (1) University of York, Heslington, York YO10 5DD, UK, and Centre for Economic Policy Research, London EC1V 7RR, UK (e-mail: sgA1@york.ac.uk), GB;(2) UCLA, 2263 Bunche Hall, 405 Hilgard Avenue, Los Angeles, CA 90095-1447, USA (e-mail: ozler@econ.ucla.edu), US;(3) Koc University, Rumeli Feneri Yolu, Sariyer 80910, Istanbul, TURKEY (e-mail: musman@ku.edu.tr), TR |
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Abstract: | Summary. 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 , even if ex post feasible. The government eliminates such equilibria by offering a sufficiently high return, only if endowment volatility is small. Received: June 1, 1999; revised version: December 4, 2000 |
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Keywords: | and Phrases: International project finance Lender behavior Private information Coordination problem Subgame perfect equilibria. |
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