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The role of lender behavior in international project finance

Author

Listed:
  • Sumru Altug

    (University of York, Heslington, York YO10 5DD, UK, and Centre for Economic Policy Research, London EC1V 7RR, UK)

  • Sule Ozler

    (UCLA, 2263 Bunche Hall, 405 Hilgard Avenue, Los Angeles, CA 90095-1447, USA)

  • Murat Usman

    (Koc University, Rumeli Feneri Yolu, Sariyer 80910, Istanbul, TURKEY)

Abstract

A sovereign borrower seeks to raise funds internationally to finance a fixed-size project, which no single lender can finance alone. Lenders cannot lend more than their endowments, which are private information. A coordination failure arises; therefore, some socially desirable projects may not be financed, even if ex post feasible. There are multiple equilibria, and a conflict exists between lenders about which equilibrium to coordinate on. When endowments are volatile, some lenders prefer an equilibrium in which the project is financed with probability $p

Suggested Citation

  • Sumru Altug & Sule Ozler & Murat Usman, 2002. "The role of lender behavior in international project finance," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 19(3), pages 571-598.
    • Handle: RePEc:spr:joecth:v:19:y:2002:i:3:p:571-598
    Note: Received: June 1, 1999; revised version: December 4, 2000
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    Keywords

    International project finance; Lender behavior; Private information; Coordination problem; Subgame perfect equilibria.;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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