Incentives and Insurance in International Financial Markets.
Abstract
International credit transactions differ from domestic ones in that lender and borrowers reside under different jurisdictions. This makes pressing a claim, such as demanding repayment of principal and interest, particularly difficult. Especially if the borrower is a foreign government, it is often impossible for the lender to obtain assistance from the legal authorities in his attempt to force the borrower to honor the loan contract. This note lays the theoretical groundwork for estimates of resource flows to the Communist World resulting from Western trade policy. Section II considers the strategic behavior of borrowers and lenders and the consequences of this behavior for the probability of a loss occurring. Section III analyses the insured lender's incentives more closely, including self-insured lenders, external insurance, and lender-specific risks and risk perceptions. The last section considers the policy implications of the findings, especially with respect to Western loans to the East. Originator-supplied keywords include: International trade, Economics, Finance, and USSR.
Document Details
- Document Type
- Technical Report
- Publication Date
- Jun 01, 1984
- Accession Number
- ADA147920
Entities
People
- D. F. Kohler
Organizations
- RAND Corporation