A Model of Lending Resumption after Default: Lessons from Capital Markets during the Nineteenth Century

Juan Solé

Economica, 2009, vol. 76, issue 303, 557-573

Abstract: This paper mines the experience of the nineteenth‐century capital markets to propose an alternative interpretation of international defaults. The standard view—that sovereign default entails exclusion from markets—was often contradicted by reality: in some cases lending ceased, but in others it continued. This paper claims that lenders' responses to default stem from the additional knowledge about borrowers that is acquired during default episodes. Lending is modelled in a costly‐state‐verification environment where sovereigns have private information about their investment projects (good or bad). After default, lenders audit projects and interrupt lending only if the project is believed to be a ‘bad’ one.

Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/j.1468-0335.2008.00690.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:econom:v:76:y:2009:i:303:p:557-573

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0013-0427

Access Statistics for this article

Economica is currently edited by Frank Cowell, Tore Ellingsen and Alan Manning

More articles in Economica from London School of Economics and Political Science Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().