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Outcomes-Based Conditionality: Its Role and Optimal Design

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  • Anna Ivanova

Abstract

The paper employs a principal-agent framework to analyze the role and design of outcomesbased 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 the IMF loan is unsubsidized. The only role conditionality ends up playing in this case is that of an efficiency tool. 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 that IMF financing be subsidized.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/128.

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Length: 25
Date of creation: 01 May 2006
Date of revision:
Handle: RePEc:imf:imfwpa:06/128

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Keywords: Fund; Subsidies; Economic models;

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  1. Azam, Jean-Paul & Laffont, Jean-Jacques, 2003. "Contracting for aid," Journal of Development Economics, Elsevier, vol. 70(1), pages 25-58, February.
  2. Svensson, Jakob, 1998. "Foreign aid and rent-seeking," Policy Research Working Paper Series 1880, The World Bank.
  3. Kenneth Rogoff, 1999. "International Institutions for Reducing Global Financial Instability," NBER Working Papers 7265, National Bureau of Economic Research, Inc.
  4. Ralph Chami & Ilhyock Shim & Sunil Sharma, 2004. "A Model of the IMF as a Coinsurance Arrangement," IMF Working Papers 04/219, International Monetary Fund.
  5. Grossman, G.M. & Helpman, E., 1992. "Protection for Sale," Papers 21-92, Tel Aviv.
  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. Dixit, Avinash, 1997. "Power of Incentives in Private versus Public Organizations," American Economic Review, American Economic Association, vol. 87(2), pages 378-82, May.
  9. 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. Silvia Marchesi & Laura Sabani & Axel Dreher, 2009. "Agency and communication in IMF conditional lending: theory and empirical evidence," Working Papers 151, University of Milano-Bicocca, Department of Economics, revised Feb 2009.
  2. Silvia Marchesi & Laura Sabani & Axel Dreher, 2009. "Read my Lips: the Role of Information Transmission in multilateral reform design," Development Working Papers 274, Centro Studi Luca d\'Agliano, University of Milano.

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