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Private External Overborrowing in Undistorted Economies: Market Failure and Optimal Policy


Eduardo Fernandez-Arias


Inter-American Development Bank (IDB)

Davide Lombardo


European University Institute
March 1998

IDB Working Paper No. 305

Abstract:     
An undistorted free market economy endowed with perfectly rational and informed agents overborrows, i. e. , borrows beyond the efficient level, because of the agents` failure to internalize credit rationing resulting from sovereign risk. It follows that the elimination of the market overborrowing will not cure private overborrowing. This paper explores the possibilities of economic policy as a remedy to the problem.

Number of Pages in PDF File: 38

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Date posted: April 20, 2011  

Suggested Citation

Fernandez-Arias, Eduardo and Lombardo, Davide, Private External Overborrowing in Undistorted Economies: Market Failure and Optimal Policy (March 1998). IDB Working Paper No. 305. Available at SSRN: http://ssrn.com/abstract=1815996 or http://dx.doi.org/10.2139/ssrn.1815996

Contact Information

Eduardo Fernandez-Arias (Contact Author)
Inter-American Development Bank (IDB) ( email )
1300 New York Avenue, NW
Research Department
Washington, DC 20577
United States
202-623-3783 (Phone)
202-623-2481 (Fax)

Davide Lombardo
European University Institute ( email )
Badia Fiesolana
Via dei Roccettini 9
I-50016 San Domenico Fiesole, 50014
Italy
Feedback to SSRN (Beta)


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