Emerging Market Lending: Is Moral Hazard Endogenous?

Tobias Broer
Additional contact information
Tobias Broer: Stockholm University

Post-Print from HAL

Abstract: This paper shows how growth in financially open developing countries is affected when relations with international lenders suffer from the danger of moral hazard. We find that if entrepreneurs can gamble with foreign creditors¡¯ money, borrowing under standard debt contracts is constrained by a No-Gambling Condition similar to that in Hellmann, Murdock, and Stiglitz (2000). However, this incentive constraint is endogenous in the development process: growth increases entrepreneurs¡¯ own capital at risk and thus reduces incentives to gamble. But capital accumulation also decreases the profitability of investment, which has the opposite effect. General equilibrium under moral hazard shows a unique and stable steady state, but involves at least temporary rationing of profitable projects and possibly positive net investment by developing countries in international financial markets.

Date: 2007
References: Add references at CitEc
Citations:

Published in Journal of Development Economics, 2007, 32 (2), pp.41-67

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:hal:journl:hal-04490082

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().