Theoretical Issues in International Borrowing

Jeffrey Sachs

No 1189, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The current crisis in international lending points up a lesson re-learned several times in the past 150 years: the international loan markets function very differently from the textbook model of competitive lending. This paper discusses various extensions of the basic model.First, we amend the textbook model to show how limitations on a government'staxing authority may greatly affect its optimal borrowing strategy.Second, we explore the implications of adebtor country's option to repudiate debt.Third, we show that efficient lending may require collective actions by bank syndicates, and that a breakdown in collective action can result in serious inefficiencies and even financial panics.

Date: 1983-08
Note: ITI IFM
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