IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp4604.html
   My bibliography  Save this paper

Repayment versus Investment Conditions and Exclusivity in Lending Contracts

Author

Listed:
  • Bougheas, Spiros

    () (University of Nottingham)

  • Dasgupta, Indraneel

    () (Indian Statistical Institute)

  • Morrissey, Oliver

    () (University of Nottingham)

Abstract

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 (‘investment’). 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 can access funds from other lenders.

Suggested Citation

  • Bougheas, Spiros & Dasgupta, Indraneel & Morrissey, Oliver, 2009. "Repayment versus Investment Conditions and Exclusivity in Lending Contracts," IZA Discussion Papers 4604, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp4604
    as

    Download full text from publisher

    File URL: http://ftp.iza.org/dp4604.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Allan Drazen, 2002. "Conditionality and Ownership in IMF Lending: A Political Economy Approach," IMF Staff Papers, Palgrave Macmillan, vol. 49(Special i), pages 36-67.
    2. Jeffrey D. Sachs, 1989. "Developing Country Debt and Economic Performance. The International Financial System," NBER Chapters,in: Developing Country Debt and Economic Performance, Volume 1: The International Financial System, pages -12 National Bureau of Economic Research, Inc.
    3. Webb, David C, 1991. "Long-term Financial Contracts Can Mitigate the Adverse Selection Problem in Project Financing," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(2), pages 305-320, May.
    4. 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.
    5. Bulow, Jeremy & Rogoff, Kenneth, 1989. "Sovereign Debt: Is to Forgive to Forget?," American Economic Review, American Economic Association, vol. 79(1), pages 43-50, March.
    6. 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.
    7. Svensson, Jakob, 2000. "When is foreign aid policy credible? Aid dependence and conditionality," Journal of Development Economics, Elsevier, vol. 61(1), pages 61-84, February.
    8. Fafchamps, Marcel, 1996. "Sovereign debt, structural adjustment, and conditionality," Journal of Development Economics, Elsevier, vol. 50(2), pages 313-335, August.
    9. Jeffrey D. Sachs, 1989. "Introduction to "Developing Country Debt and Economic Performance, Volume 1: The International Financial System"," NBER Chapters,in: Developing Country Debt and Economic Performance, Volume 1: The International Financial System, pages 1-36 National Bureau of Economic Research, Inc.
    10. Morris, Stephen & Shin, Hyun Song, 2006. "Catalytic finance: When does it work?," Journal of International Economics, Elsevier, vol. 70(1), pages 161-177, September.
    11. 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.
    12. Corsetti, Giancarlo & Guimaraes, Bernardo & Roubini, Nouriel, 2006. "International lending of last resort and moral hazard: A model of IMF's catalytic finance," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 441-471, April.
    13. Sharpe, Steven A, 1990. " Asymmetric Information, Bank Lending, and Implicit Contracts: A Stylized Model of Customer Relationships," Journal of Finance, American Finance Association, vol. 45(4), pages 1069-1087, September.
    14. Esty, Benjamin C. & Megginson, William L., 2003. "Creditor Rights, Enforcement, and Debt Ownership Structure: Evidence from the Global Syndicated Loan Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(01), pages 37-60, March.
    15. Maurizio Zanardi & Alberto Paloni, 2007. "Can conditionality improve borrower ownership?," ULB Institutional Repository 2013/9825, ULB -- Universite Libre de Bruxelles.
    16. Eaton, Jonathan, 1990. "Debt Relief and the International Enforcement of Loan Contracts," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 43-56, Winter.
    17. Drazen, Allan, 2002. "Conditionality and Ownership in IMF Lending: A Political Economy Approach," CEPR Discussion Papers 3562, C.E.P.R. Discussion Papers.
    18. Giulio Federico, 2004. "Aid and Policies under Weak Donor Conditionality," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 13(3), pages 395-416, September.
    19. Townsend, Robert M, 1982. "Optimal Multiperiod Contracts and the Gain from Enduring Relationships under Private Information," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1166-1186, December.
    20. Adrian Penalver, 2004. "How can the IMF catalyse private capital flows? A model," Bank of England working papers 215, Bank of England.
    21. Townsend, Robert M., 1979. "Optimal contracts and competitive markets with costly state verification," Journal of Economic Theory, Elsevier, vol. 21(2), pages 265-293, October.
    22. Jeffrey D. Sachs, 1989. "Developing Country Debt and Economic Performance, Volume 1: The International Financial System," NBER Books, National Bureau of Economic Research, Inc, number sach89-1, December.
    23. Maurizio Zanardi & Alberto Paloni, 2007. "The IMF, World Bank and policy reform," ULB Institutional Repository 2013/9823, ULB -- Universite Libre de Bruxelles.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ronelle Burger & Indraneel Dasgupta & Trudy Owens, 2011. "A Model of NGO Regulation with an Application to Uganda," Working Papers 22/2011, Stellenbosch University, Department of Economics.

    More about this item

    Keywords

    exclusivity; long-term loans; repayment conditions; investment conditions;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp4604. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak). General contact details of provider: http://www.iza.org .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.