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The Pure Theory of Country Risk
Jonathan Eaton,Jonathan Eaton,Mark Gersovitz,Mark Gersovitz,Joseph E. Stiglitz,Joseph E. Stiglitz +5 more
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In this article, the authors present a survey of recent lterature that has analyzed the nature of credit relations between developed and developing countries, focusing on the problem of enforcing the two sides of a loan contract.Abstract:
This paper attempts to survey, and to put into perspective, recent lterature that has analyzed the nature of credit relations between developed and developing countries.This analysis has made use of recent advances in the economics of information and strategic interaction. Traditional concepts of solvency and liquidity are of little help in understanding problems of soverign debt. Creditors do not have the means to seize the assets of a borrower in default. Hence the borrower who is expected eventually to repay his debts should be able to borrow to meet any current debt-service obligations. A problem that is essential to a theory of international lending is that of enforcement. The difficulty is one of ensuring that the two sides of a loan contract adhere to it, in particular that the borrower repays the lender and the lenders can commit themselves to penalize the borrower if he does not.read more
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Sovereign Debt: is to Forgive to Forget?
TL;DR: In this paper, the authors argue that international lending to a less-developed country cannot be based on the debtor's reputation for making repayments and that loans to LDCs will not be made or repaid unless foreign creditors have legal or other direct sanctions they can exercise against a sovereign debtor who defaults.
Posted ContentDOI
The causes and consequences of the dependence of quality on price
TL;DR: In this article, Adam Smith argued that the greater part of the money which was to be lent, would be lent to prodigals and profectors, who alone would be willing to give this higher interest.
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Financing vs. Forgiving a Debt Overhang
TL;DR: The authors examines the tradeoffs facing creditors of a country whose debt is large enough that the country cannot attract voluntary new lending, and shows that the choice between financing and forgiveness represents a tradeoff.
Book ChapterDOI
Servicing the Public Debt: The Role of Expectations
TL;DR: In this paper, the role of expectations in servicing the public debt is discussed, and the important reasons for debt repudiation to be costly are the fact that not all individuals are alike and, therefore, the incidence of repudiation is not uniform.
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Financial Market Imperfections and Business Cycles
TL;DR: This article developed a simple model of macroeconomic behavior which incorporates the impact of financial market imperfections, such as those generated by asymmetric information in financial markets, and showed that these information asymmetries may lead to breakdowns in markets, like that for equity, in which risks arm shared.
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Posted ContentDOI
Credit Rationing in Markets with Imperfect Information.
Joseph E. Stiglitz,Andrew Weiss +1 more
TL;DR: In this paper, a model is developed to provide the first theoretical justification for true credit rationing in a loan market, where the amount of the loan and amount of collateral demanded affect the behavior and distribution of borrowers, and interest rates serve as screening devices for evaluating risk.
Journal ArticleDOI
Bank Runs, Deposit Insurance, and Liquidity
TL;DR: The authors showed that bank deposit contracts can provide allocations superior to those of exchange markets, offering an explanation of how banks subject to runs can attract deposits, and showed that there are circumstances when government provision of deposit insurance can produce superior contracts.
Journal ArticleDOI
Reputation and imperfect information
David M. Kreps,Robert Wilson +1 more
TL;DR: The authors reexamine Selten's model, adding to it a small amount of imperfect (or incomplete) information about players' payoffs, and find that this addition is sufficient to give rise to the reputation effect that one intuitively expects.
Journal ArticleDOI
Debt with Potential Repudiation: Theoretical and Empirical Analysis
Jonathan Eaton,Mark Gersovitz +1 more
Journal ArticleDOI
Imperfect Information, Uncertainty, and Credit Rationing
Dwight M. Jaffee,Thomas Russell +1 more
TL;DR: In this paper, the model of borrowing behavior and market behavior under competitive conditions are discussed. But the model is not applicable to the case of credit default swaps, as discussed in this paper.