Repayment Versus Investment Conditions and Exclusivity in Lending Contracts

27 Pages Posted: 8 Dec 2009

See all articles by Spiros Bougheas

Spiros Bougheas

University of Nottingham - School of Economics

Indraneel Dasgupta

Durham University - Department of Economics and Finance; IZA Institute of Labor Economics

Oliver Morrissey

University of Nottingham - Development Economics

Date Written: November 2009

Abstract

Lenders condition future loans on some index of past performance. Typically, banks condition future loans on repayments of earlier obligations whilst international organizations (official lenders) condition future loans on the implementation of some policy action ('investment'). We build an agency model that accounts for these tendencies. The optimal conditionality contract depends on exclusivity - the likelihood that a borrower who has been denied funds from the original lenders can access funds from other lenders.

Keywords: long-term loans, investment conditions, repayment conditions, exclusivity

JEL Classification: G21, F34

Suggested Citation

Bougheas, Spiros and Dasgupta, Indraneel and Morrissey, Oliver, Repayment Versus Investment Conditions and Exclusivity in Lending Contracts (November 2009). IZA Discussion Paper No. 4604. Available at SSRN: https://ssrn.com/abstract=1519240

Spiros Bougheas (Contact Author)

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

Indraneel Dasgupta

Durham University - Department of Economics and Finance ( email )

Durham, DH1 3HY
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Oliver Morrissey

University of Nottingham - Development Economics ( email )

University Park
Nottingham, NG8 1BB
United Kingdom
+44 (0)115 9515475 (Phone)
+44 (0)115 951 4159 (Fax)

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