Debt with potential repudiation

Timothy Worrall

No 69, Discussion Papers, Series II from University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy"

Abstract: Lending across national boundaries is different from lending within national boundaries because of the difficulty of imposing legal sanctions. This note, examines a simple model of international lending where the borrower can repudiate, without legal sanction, if this is to his advantage. The model has an infinite time horizon and it is assumed the borrower has an i.i.d. income stream. It is shown that, although debt is initially restricted, in the long run consumption is completely stabilised.

Date: 1988
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Journal Article: Debt with potential repudiation (1990)
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