Donor herding and domestic debt crisis
This article presents a new model based on the loan-pushing model by Basu (1991) to show how a domestic debt crisis can occur in a low-income country following donor herding. The model focuses on the rational herding behaviour of donors due to payoff and information externalities. Although there are many theoretical models on herding behaviour, these models have not formally considered the relationship between donor herding and domestic debt crisis in a low-income country. This article is an attempt to fill this gap. The article shows that due to donor herding behaviour a domestic debt crisis can occur once the actual debt level is above the desirable one.
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Volume (Year): 14 (2007)
Issue (Month): 4 ()
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References listed on IDEAS
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- Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 2010.
"A theory of Fads, Fashion, Custom and cultural change as informational Cascades,"
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- Abhijit V. Banerjee, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 797-817.
- Devenow, Andrea & Welch, Ivo, 1996. "Rational herding in financial economics," European Economic Review, Elsevier, vol. 40(3-5), pages 603-615, April.
- Gale, D. & Chamley, C., 1992.
"Information Revelation and Strategic Delay in a Model of Investment,"
10, Boston University - Department of Economics.
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