Some curious properties of a familiar model of debt and default

Jonathan Eaton; Mark Gersovitz

doi:10.1016/0165-1765(94)00625-C

Some curious properties of a familiar model of debt and default

Jonathan Eaton
, Mark Gersovitz

Economics

Research output: Contribution to journal › Article › peer-review

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 language	English (US)
Pages (from-to)	367-371
Number of pages	5
Journal	Economics Letters
Volume	48
Issue number	3-4
DOIs	https://doi.org/10.1016/0165-1765(94)00625-C
State	Published - Jun 1995

All Science Journal Classification (ASJC) codes

Finance
Economics and Econometrics

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10.1016/0165-1765(94)00625-C

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title = "Some curious properties of a familiar model of debt and default",

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.",

author = "Jonathan Eaton and Mark Gersovitz",

year = "1995",

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AU - Gersovitz, Mark

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Some curious properties of a familiar model of debt and default

Abstract

All Science Journal Classification (ASJC) codes

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