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| Author: | Solé, J. |
| Title: | A model of lending resumption after default: Lessons from capital markets during the nineteenth century |
| Journal: | Economica
2009 : JUL, VOL. 76:303, 557-573 |
| Index terms: | capital markets loans models |
| Language: | eng |
| Abstract: | This paper argues that lenders' responses to default are based on the additional knowledge about borrowers that is acquired during default episodes. Lending is modelled in a costly-state-verification environment with sovereigns having private information about their investment projects (good or bad). After default, lenders audit projects and interrupt lending only if the project is believed to be a 'bad' one. |
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