Some curious properties of a familiar model of debt and default

Jonathan W. Eaton, Mark Gersovitz

Research output: Contribution to journalArticle

4 Scopus citations

Abstract

Because sovereign borrowers may default, lenders charge contractual interest rates different from their opportunity costs of funds. This contractual rate may be above or below the borrower's marginal product of capital and cannot guide domestic investments. Other curious results obtain.

Original languageEnglish (US)
Pages (from-to)367-371
Number of pages5
JournalEconomics Letters
Volume48
Issue number3-4
DOIs
Publication statusPublished - Jan 1 1995

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All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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