A Model of the Imf As a Coinsurance Arrangement

Ralph Chami, Ilhyock Shim and Sunil Sharma ()

No 2004/219, 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: WP; optimal contract; utility function; IMF; coinsurance arrangement; conditionality; moral hazard; Samaritan’s dilemma; King Lear’s dilemma; policy effort; surveillance country; IMF help; loan contract; perspective-king Lear's dilemma; country welfare; IMF commitment; IMF contract; IMF loan contract; Personal income; Loans; International capital markets; Income shocks; Global (search for similar items in EconPapers)
Pages: 44
Date: 2004-11-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Journal Article: A Model of the IMF as a Coinsurance Arrangement (2008)
Working Paper: A Model of the IMF as a Coinsurance Arrangement (2007)
Working Paper: A model of the IMF as a coinsurance arrangement (2005)
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