Repayment Versus Investment Conditions and Exclusivity in Lending Contracts
27 Pages Posted: 8 Dec 2009
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: Suggested Citation
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