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A Model of the Imf As a Coinsurance Arrangement

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  • Ralph Chami
  • Ilhyock Shim
  • Sunil Sharma

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.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/219.

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Length: 44
Date of creation: 01 Nov 2004
Date of revision:
Handle: RePEc:imf:imfwpa:04/219

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Keywords: IMF; Conditionality; Moral hazard; Economic models; coinsurance; repayment; debt; interest; debt forgiveness; loans; creditor; external debt; obligations; creditors; debtors; debts; insurance markets; insurance companies; emerging markets; deficits; imperfect information; financial systems; bailouts;

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References

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Citations

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Cited by:
  1. Ran Bi & Prakash Kannan & Suman Sambha Basu, 2010. "Regional Reserve Pooling Arrangements," 2010 Meeting Papers 675, Society for Economic Dynamics.
  2. Barry Eichengreen, 2007. "Insurance Underwriter or Financial Development Fund: What Role for Reserve Pooling in Latin America?," Open Economies Review, Springer, vol. 18(1), pages 27-52, February.
  3. Barry J. Eichengreen & Poonam Gupta & Ashoka Mody, 2006. "Sudden Stops and IMF-Supported Programs," IMF Working Papers 06/101, International Monetary Fund.
  4. Anna Ivanova, 2006. "Outcomes-Based Conditionality," IMF Working Papers 06/128, International Monetary Fund.
  5. Irwin, Gregor & Penalver, Adrian & Salmon, Chris & Taylor, Ashley, 2008. "Dealing with country diversity: challenges for the IMF credit union model," Bank of England working papers 349, Bank of England.
  6. Jeromin Zettelmeyer & Jonathan David Ostry & Olivier Jeanne, 2008. "A Theory of International Crisis Lending and IMF Conditionality," IMF Working Papers 08/236, International Monetary Fund.

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