The role of lender behavior in international project finance

S Altug; S Ozler; M Usman

The role of lender behavior in international project finance

S Altug, S Ozler, M Usman

Health Sciences

Research output: Contribution to journal › Article › peer-review

Abstract

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 are 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 in which the project is financed with probability p < 1, even if ex post feasible. The government eliminates such equilibria by offering a sufficiently high return, only if endowment volatility is small.

Original language	English
Pages (from-to)	571-598
Number of pages	28
Journal	Economic theory
Volume	19
Issue number	3
Publication status	Published - Apr 2002

Keywords

international project finance
lender behavior
private information
coordination problem
subgame perfect equilibria
OF-PAYMENTS CRISES
LARGE BANKS
DEBT
MODEL

Cite this

@article{a07d30a67b1a45d79a017c15cfdfeaf1,

title = "The role of lender behavior in international project finance",

abstract = "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 are 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 in which the project is financed with probability p < 1, even if ex post feasible. The government eliminates such equilibria by offering a sufficiently high return, only if endowment volatility is small.",

keywords = "international project finance, lender behavior, private information, coordination problem, subgame perfect equilibria, OF-PAYMENTS CRISES, LARGE BANKS, DEBT, MODEL",

author = "S Altug and S Ozler and M Usman",

year = "2002",

month = apr,

language = "English",

volume = "19",

pages = "571--598",

journal = "Economic theory",

issn = "0938-2259",

publisher = "Springer",

number = "3",

}

TY - JOUR

T1 - The role of lender behavior in international project finance

AU - Altug, S

AU - Ozler, S

AU - Usman, M

PY - 2002/4

Y1 - 2002/4

N2 - 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 are 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 in which the project is financed with probability p < 1, even if ex post feasible. The government eliminates such equilibria by offering a sufficiently high return, only if endowment volatility is small.

AB - 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 are 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 in which the project is financed with probability p < 1, even if ex post feasible. The government eliminates such equilibria by offering a sufficiently high return, only if endowment volatility is small.

KW - international project finance

KW - lender behavior

KW - private information

KW - coordination problem

KW - subgame perfect equilibria

KW - OF-PAYMENTS CRISES

KW - LARGE BANKS

KW - DEBT

KW - MODEL

M3 - Article

SN - 0938-2259

VL - 19

SP - 571

EP - 598

JO - Economic theory

JF - Economic theory

IS - 3

ER -