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Repayment versus Investment Conditions and Exclusivity in Lending Contracts

  • Spiros Bougheas
  • Indraneel Dasgupta
  • Oliver Morrissey

Lenders condition future loans on some index of past performance. Typically, banks condition future loans on repayments of earlier obligations, whilst international organizations (official lenders) condition future loans on the implementation of some policy action (iinvestmentj). We build an agency model that accounts for these tendencies. The optimal conditionality contract depends on exclusivity - the likelihood that a borrower who has been denied funds from the original lenders cannot access funds from other lenders.

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Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 167 (2011)
Issue (Month): 2 (June)
Pages: 247-265

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201106)167:2_247:rvicae_2.0.tx_2-f
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  1. Marchesi, Silvia & Sabani, Laura, 2007. "IMF concern for reputation and conditional lending failure: Theory and empirics," Journal of Development Economics, Elsevier, vol. 84(2), pages 640-666, November.
  2. Giancarlo Corsetti & Bernardo Guimaraes & Nouriel Roubini, 2003. "International Lending of Last Resort and Moral Hazard: A Model of IMF's Catalytic Finance," NBER Working Papers 10125, National Bureau of Economic Research, Inc.
  3. Spiros Bougheas & Indraneel Dasgupta & Oliver Morrissey, 2007. "Tough love or unconditional charity?," Oxford Economic Papers, Oxford University Press, vol. 59(4), pages 561-582, October.
  4. Bell, Clive, 1990. "Interactions between Institutional and Informal Credit Agencies in Rural India," World Bank Economic Review, World Bank Group, vol. 4(3), pages 297-327, September.
  5. Maurizio Zanardi & Alberto Paloni, 2007. "The IMF, World Bank and policy reform," ULB Institutional Repository 2013/9823, ULB -- Universite Libre de Bruxelles.
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