The International Debt Problem: Could Someone Please Explain It to Me?

Kaushik Basu

No wp-1989-078, WIDER Working Paper Series from World Institute for Development Economic Research (UNU-WIDER)

Abstract: The aim of this paper is to raise a few open questions and to bring to light some mismatches between existing theories and the evidence. (1) It is shown that many standard international debt models unwittingly require some agents to behave irrationally. A method using triadic interactions is developed here to explain the occurrence of lending with sovereign risk and fully rational agents. (2) The market structure underlying the existing models is often left unclear.

Keywords: Public debt; Game theory; International finance; Foreign loans; Rational expectations (search for similar items in EconPapers)
Date: 1989
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