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 is 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 where the project is financed with probability p < 1, even if ex post feasible. The government eliminates such equilibria by offering a sufficiently high return, but only if endowment volatility is small.
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Paper provided by Department of Economics, University of York in its series Discussion Papers with number
00/33.
Length: Date of creation: Date of revision: Handle: RePEc:yor:yorken:00/33
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Find related papers by JEL classification: F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements F34 - International Economics - - International Finance - - - International Lending and Debt Problems
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