Project Contingent Repudiation Risk in the Model of North-South Lending

Constantin Gurdgiev

Economics Department Working Paper Series from Department of Economics, National University of Ireland - Maynooth

Abstract: Present research proposes the extension of the Gertler-Rogoff-Lane model of international lending under the risk of repudiation with moral hazard to encompass the possibility of the project contingency in the repudiation risk itself. By linking the level of repudiation risk to the size of the project we show that investment projects undertaken can be biased in a direction favouring larger projects. Alternatively, we show that smaller investors are required in the marketplace, under certain conditions, to provide greater guarantees or higher collateral in order to obtain funds needed for investment.

Pages: 17 pages
Date: 2003-08
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