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Investing a Risky Projects under the Government Guarantees on Loans

Author

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  • Slastnikov, A.

    (Central Economics and Mathematics Institute, Moscow, Russia)

Abstract

The paper considers the model which allows to study a mechanism of the government loan guarantees for financing risky projects. The project is risky, i.e. after beginning of financing it can fail with some probability, even before starting functioning. To finance the project it is necessary to obtain funds on credit from a bank. Since a risky project has the probability of a failure to return the credit, the interest rate on a credit can be rather high. In order to reduce the interest rate and to stimulate investor the state guarantees a reimbursement for the bank of a part of the loan (if project fails). We propose a game theory optimization approach to deriving a part of loan reimbursement and a credit policy of bank in financing a risky projects. We prove the existence of Stackelberg equilibrium in the game "government-bank-investor" as well as analyze the obtained results and give its economic interpretation.

Suggested Citation

  • Slastnikov, A., 2014. "Investing a Risky Projects under the Government Guarantees on Loans," Journal of the New Economic Association, New Economic Association, vol. 24(4), pages 12-37.
    • Handle: RePEc:nea:journl:y:2014:i:24:p:12-37
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    References listed on IDEAS

    as
    1. Сластников А.Д., 2010. "Оптимизация Участия Государства В Софинансировании Проектов В Условиях Государственно-Частного Партнерства," Журнал Экономика и математические методы (ЭММ), Центральный Экономико-Математический Институт (ЦЭМИ), vol. 46(4), октябрь.
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    More about this item

    Keywords

    investment project; loan; risk; government guarantees; optimal part of loan reimbursement;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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