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Outcomes-Based Conditionality: Its Role and Optimal Design

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  • Anna Ivanova

    (International Monetary Fund)

Abstract

This paper employs a principal-agent framework to analyze the role and design of outcomes-based conditionality in the presence of market frictions and domestic opposition. The results suggest that outcomes-based conditionality is a good option for the IMF when opposition to reforms is relatively weak and when IMF loans are unsubsidized. The only role conditionality ends up playing in this case is that of an efficiency tool to ensure efficient allocation of resources in the presence of market frictions. The benefits of outcomes-based conditionality in the presence of strong opposition are less clear, and using this conditionality as an incentive tool would require IMF financing to be subsidized. Copyright 2006, International Monetary Fund

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal IMF Staff Papers.

Volume (Year): 53 (2006)
Issue (Month): si ()
Pages: 4

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Handle: RePEc:pal:imfstp:v::y:2006:i:si:p:4

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  1. Svensson, Jakob, 2000. "Foreign aid and rent-seeking," Journal of International Economics, Elsevier, vol. 51(2), pages 437-461, August.
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  3. Ralph Chami & Sunil Sharma & Ilhyock Shim, 2005. "A model of the IMF as a coinsurance arrangement," BIS Working Papers 170, Bank for International Settlements.
  4. Kenneth Rogoff, 1999. "International Institutions for Reducing Global Financial Instability," NBER Working Papers 7265, National Bureau of Economic Research, Inc.
  5. Dixit, Avinash, 1997. "Power of Incentives in Private versus Public Organizations," American Economic Review, American Economic Association, vol. 87(2), pages 378-82, May.
  6. Jeffrey D. Sachs, 1999. "International lender of last resort? what are the alternatives?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 43(Jun), pages 181-203.
  7. Drazen, Allan, 2002. "Conditionality and Ownership in IMF Lending: A Political Economy Approach," CEPR Discussion Papers 3562, C.E.P.R. Discussion Papers.
  8. Bernheim, B Douglas & Whinston, Michael D, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, MIT Press, vol. 101(1), pages 1-31, February.
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Cited by:
  1. Marchesi, Silvia & Sabani, Laura & Dreher, Axel, 2011. "Read my lips: The role of information transmission in multilateral reform design," Journal of International Economics, Elsevier, vol. 84(1), pages 86-98, May.
  2. Silvia Marchesi & Laura Sabani & Axel Dreher, 2009. "Agency and Communication in IMF Conditional Lending: Theory and Empirical Evidence," CESifo Working Paper Series 2574, CESifo Group Munich.

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