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| Sumru Altug, Murat Usman and Sule Ozler |
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| ''The Role of Lender behavior in International Project Finance'' |
| ( 2001, Vol. 28 No.2 ) |
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| 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 < 1, even if ex post feasible. The government eliminates such equilibria by offering a sufficiently high return, only if endowment volatility is small. |
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| Manuscript Received : Jan 29 2001 | | Manuscript Accepted : Jan 29 2001 |
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