Thursday, September 13, 2012

International Lending with Moral Hazard and Risk of Repudiation

Yesterday I presented the paper "International Lending with Moral Hazard and Risk of Repudiation" by Andrew Atkeson (1991 Econometrica) at the Berkeley Macroeconomics Lunch. My slides are here.

The paper presents a model to explain why countries sometimes face capital outflows when they suffer an adverse macroeconomic shock. With complete markets and perfect insurance, we wouldn't see such a situation. But in the model, the markets aren't complete. The borrower is a sovereign nation, and hence can repudiate the loan. Moreover, the lender cannot observe whether the borrower invests the loaned funds productively or uses them for consumption. The only way to incentivize the borrower to invest some of the funds in equilibrium is if insurance is incomplete, so that the borrower's future utility has some dependence on their investment choice. Thus, moral hazard imposes an insurance-incentives tradeoff.

While preparing for the presentation, I came across an interesting paper by Drelichman and Voth (2011) called "Lending to the Borrower from Hell: Debt and Default in the Age of Philip II.” Here's the abstract:

What sustained borrowing without third-party enforcement in the early days of sovereign lending? Philip II of Spain accumulated towering debts while stopping all payments to his lenders four times. How could the sovereign borrow much and default often? We argue that bankers’ ability to cut off Philip II’s access to smoothing services was key. A form of syndicated lending created cohesion among his Genoese bankers. As a result, lending moratoria were sustained through a ‘cheat-the-cheater’ mechanism. Our article thus lends empirical support to a recent literature that emphasises the role of bankers’ incentives for continued sovereign borrowing.

9 comments:


  1. Do you need Personal Loan?
    Business Cash Loan?
    Unsecured Loan
    Fast and Simple Loan?
    Quick Application Process?
    Approvals within 24-72 Hours?
    No Hidden Fees Loan?
    Funding in less than 1 Week?
    Get unsecured working capital?
    Email us:(perfectfinancialcredite@gmail.com
    Application Form:
    =================
    Full Name:................
    Loan Amount Needed:.
    Purpose of loan:.......
    Loan Duration:..
    Gender:.............
    Marital status:....
    Location:..........
    Home Address:..
    City:............
    Country:......
    Phone:..........
    Mobile / Cell:....
    Occupation:......
    Monthly Income:....
    Email us(perfectfinancialcredite@gmail.com)

    ReplyDelete
  2. Hello Everybody,
    My name is Mrs Sharon Sim. I live in Singapore and i am a happy woman today? and i told my self that any lender that rescue my family from our poor situation, i will refer any person that is looking for loan to him, he gave me happiness to me and my family, i was in need of a loan of $250,000.00 to start my life all over as i am a single mother with 3 kids I met this honest and GOD fearing man loan lender that help me with a loan of $250,000.00 SG. Dollar, he is a GOD fearing man, if you are in need of loan and you will pay back the loan please contact him tell him that is Mrs Sharon, that refer you to him. contact Dr Purva Pius, call/whats-App Contact Number +918929509036 via email:(urgentloan22@gmail.com) Thank you.

    ReplyDelete
  3. Do you need Finance?
    Are you looking for Finance?
    Are you looking for a money to enlarge your business?
    We help individuals and companies to obtain loan for business
    expanding and to setup a new business ranging any amount. Get a loan at affordable interest rate of 3%, Do you need this cash/loan for business and to clear your bills? Then send us an email now for more information contact us now via Email:maxcreditfinance@googlemail.com

    ReplyDelete
  4. Do you need Finance?
    Are you looking for Finance?
    Are you looking for a money to enlarge your business?
    We help individuals and companies to obtain loan for business
    expanding and to setup a new business ranging any amount. Get a loan at affordable interest rate of 3%, Do you need this cash/loan for business and to clear your bills? Then send us an email now for more information contact us now via Email:maxcreditfinance@googlemail.com

    ReplyDelete
  5. EMERGENCY LOAN OFFER APPLY

    We Offer all types of Finance Business Personal Cash
    Quick Cash Advance. Fast Credit Check. Cash Today.
    Fast Cash Online
    low interest rate as low as 2%
    Financial Cash Available Here
    Business Personal Cash
    Solve Your Financial Problems
    I'll advise All Cash seeker should contact us
    THERE IS NOTHING TO LOSE BUT YOUR DEBT AND FINANCIAL PROBLEMS !!!
    We Are Here To Show You A Better Way To Financial Freedom !!!
    Contact Us At : abdullahibrahimlender@gmail.com
    whatspp Number +918929490461
    Mr Abdullah Ibrahim

    ReplyDelete

  6. Offer of financing to all persons or companies, who can respect its engagements, to relaunch these activities or to settle other worries fiancees. You have the possibility to make loans ranging from 5,000 to 10,000,000 €.Our availability to reach you is within a maximum of 48 hours after receipt of your application form.Please contact the email address for your requests. Email: clemalphafinance@gmail.com Whats App or call; +91-9818603391

    ReplyDelete
  7. Do you need a loan to pay off your bills? Or for your Business if yes Email us opploansllc@gmail.com then fill this information to register your name in our data base.

    (1)Your Name:
    (2)Amount needed as loan:
    (3)Phone number:
    (4)Duration:
    (5) Male/Female:
    (6)Country

    Regards.

    ReplyDelete
  8. Students can place an order for Top Essay Services even with an urgency of one hour and be assured to receive quality Best Custom Paper Writing Service on time.

    ReplyDelete
  9. Esto es para informar al público que es necesario proporcionar asistencia financiera. Proporcionamos una tasa de interés del préstamo del 2% para individuos, empresas y corporaciones. contáctenos hoy por correo electrónico: esto es para informar al público. Proporcionamos una tasa de interés del préstamo del 2% para individuos, empresas y corporaciones. contáctenos hoy por correo electrónico: johnleemill12345@gmail.com

    ReplyDelete

Comments appreciated!