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A Model of the IMF as a Coinsurance Arrangement

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  • Chami, Ralph
  • Sharma, Sunil
  • Shim, Ilhyock

Abstract

The paper shows that an IMF-like coinsurance arrangement among countries can play a useful role in the global financial system. The operation of the coinsurance arrangement is examined under different loan contracts. It shows 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 than an ex post loan contract. Such contracts highlight the need for precommitment to contend with the Samaritan´s dilemma and time inconsistency, and state-contingent repayment schemes to deal with King Lear´s dilemma. --

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2007-26.

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Date of creation: 2007
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Handle: RePEc:zbw:ifwedp:5731

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Keywords: IMF; coinsurance arrangement; moral hazard; Samaritan´s dilemma; King Lear´s dilemma;

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References

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  25. Arnott, Richard & Stiglitz, Joseph E, 1991. "Moral Hazard and Nonmarket Institutions: Dysfunctional Crowding Out or Peer Monitoring?," American Economic Review, American Economic Association, vol. 81(1), pages 179-90, March.
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Cited by:
  1. Suman S. Basu & Ran Bi & Prakash Kannan, 2010. "Regional reserve pooling arrangements," Proceedings, Federal Reserve Bank of San Francisco, issue Oct.
  2. Barry J. Eichengreen & Poonam Gupta & Ashoka Mody, 2006. "Sudden Stops and IMF-Supported Programs," IMF Working Papers 06/101, International Monetary Fund.
  3. 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.
  4. Anna Ivanova, 2006. "Outcomes-Based Conditionality," IMF Working Papers 06/128, International Monetary Fund.
  5. Barry Eichengreen, 2006. "Insurance Underwriter or Financial Development Fund: What Role for Reserve Pooling in Latin America?," NBER Working Papers 12451, National Bureau of Economic Research, Inc.
  6. 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.

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