nep-pol New Economics Papers
on Positive Political Economics
Issue of 2005‒03‒06
two papers chosen by
Eugene Beaulieu
University of Calgary

  1. Political Risk in Syndicated Lending:Theory and Empirical Evidence Regarding the Use of ProjectFinance By CHRISTA HAINZ; STEFANIE KLEIMEIER
  2. A virtuous interaction betweenpressure groups, firms and institutions: a subsidiarity principle in a horizontal differentiation model By BECCHETTI LEONARDO; PAGANETTO LUIGI; NAZARIA SOLFERINO

    Abstract: Why do bank grant project finance loans to borrowers in risky countries? Our double moral hazard model predicts that project finance is optimal if the degree of moral hazard of the firm's manager is high and either the project faces high levels of political risk or the bank has influence over the political risk exposure of the project. Using a global and a transition economy sample of project finance loans from 1980 to 2003, we find empirical support of our predictions regarding firm moral hazard and political risk. Regarding the bank's role only the influence of the IFC is significant.
    Date: 2004–01
    Abstract: In this paper we analyse the relationship between producers' ethical responsibility and consumers' welfare in a duopoly with horizontal (ethical) differentiation. We show that the entry of an ethically concerned (socially and environmentally responsible) producer generates a Pareto improvement for all (both ethically and non ethically) concerned consumers in the North in a Hotelling game in which the incumbent and the ethical entrant compete over prices and ethical features of their products. We also show that the price reaction of the incumbent when his location is fixed has additional positive welfare effects and that - when we remove the fixed location hypothesis -incumbent's ethical imitation adds to this even though it is compensated by reduced price competition. We also analyse the relative efficiency of tax financed direct aid to the South vis à vis a policy of duty exemption for i) the socially and environmentally responsible producer, ii) both producers. We therefore show under different games how changes in costs of ethical distance, ethical location of the incumbent and amount of the duty affect the relative welfare-dominance of these three different policies.
    Date: 2003–09

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