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Repayment versus Investment Conditions and Exclusivity in Lending Contracts

  • Bougheas, Spiros

    ()

    (University of Nottingham)

  • Dasgupta, Indraneel

    ()

    (Indian Statistical Institute)

  • Morrissey, Oliver

    ()

    (University of Nottingham)

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.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4604.

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Length: 26 pages
Date of creation: Nov 2009
Date of revision:
Publication status: published in: Journal of Institutional and Theoretical Economics, 2011, 167 (2), 247-265.
Handle: RePEc:iza:izadps:dp4604
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