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A Model of the Imf As a Coinsurance Arrangement

Ralph Chami (), Ilhyock Shim and Sunil Sharma ()

No 04/219, IMF Working Papers from International Monetary Fund

Abstract: The paper shows that a coinsurance arrangement among countries can, in principle, play a useful role in helping countries bear the risks involved in developing their economies and integrating into the global financial system. The operation of the coinsurance arrangement is examined under different loan contracts offered by the IMF. The analysis suggests that, if the IMF's objective is to safeguard its resources and be concerned about the welfare of the borrower, an ex ante loan contract is more likely to create the right incentives-induce higher effort by member countries to avoid and overcome crises-than an ex-post loan contract. Such ex ante contracts highlight the need for precommitment to contend with the Samaritan’s dilemma and time inconsistency. The paper also shows that state-contingent repayment schemes are needed to deal with King Lear's dilemma.

Keywords: Conditionality; Moral hazard; IMF; coinsurance arrangement, Samaritan’s dilemma, King Lear's dilemma, coinsurance, repayment, debt, interest, Asymmetric and Private Information, International Economic Order, International Monetary Arrangements and Institutions, (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe
Date: 2004-11-01
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Journal Article: A Model of the IMF as a Coinsurance Arrangement (2008) Downloads
Working Paper: A Model of the IMF as a Coinsurance Arrangement (2007) Downloads
Working Paper: A model of the IMF as a coinsurance arrangement (2005) Downloads
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