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The Political Economy of IMF Conditionality: A Common Agency Model

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  • Wolfgang Mayer
  • Alexandros Mourmouras

Abstract

The paper models the relationship between an aid-providing international financial institution (IFI) and an aid-receiving government whose economic policy choices are influenced by a domestic interest group. Two assistance schemes are evaluated: conditional aid in which the IFI makes assistance contingent on less- distorting economic policies and unconditional aid which is provided without such conditions. Conditional aid is shown to raise welfare of the receiving country and the world as a whole relative to unconditional aid. The paper also examines how conditional and unconditional aid schemes are influenced by the IFI's opportunity cost of providing assistance and the receiving government's political dependence on a domestic interest group. Copyright Blackwell Publishing Ltd 2005.

Suggested Citation

  • Wolfgang Mayer & Alexandros Mourmouras, 2005. "The Political Economy of IMF Conditionality: A Common Agency Model," Review of Development Economics, Wiley Blackwell, vol. 9(4), pages 449-466, November.
  • Handle: RePEc:bla:rdevec:v:9:y:2005:i:4:p:449-466
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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9361.2005.00287.x
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    References listed on IDEAS

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    1. Alex Mourmouras & Wolfgang Mayer, 2002. "Vested Interests in a Positive Theory of IFI Conditionality," IMF Working Papers 02/73, International Monetary Fund.
    2. Michael Mussa, 2002. "Argentina and the Fund: From Triumph to Tragedy," Peterson Institute Press: All Books, Peterson Institute for International Economics, number pa67, January.
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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 79, Sapienza University of Rome, CIDEI.
    2. Graham Mallard, 2014. "Static Common Agency And Political Influence: An Evaluative Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 28(1), pages 17-35, February.
    3. Wolfgang Mayer & Alex Mourmouras, 2005. "On the Viability of Conditional Assistance Programs," IMF Working Papers 05/121, International Monetary Fund.
    4. Alex Mourmouras & Wolfgang Mayer, 2009. "International Financial Assistance: A Loan Mechanism-Design Approach," Economics and Politics, Wiley Blackwell, vol. 21(1), pages 126-158, March.
    5. James Hollyer, 2010. "Conditionality, compliance, and domestic interests: State capture and EU accession policy," The Review of International Organizations, Springer, vol. 5(4), pages 387-431, December.
    6. Oscar Calvo-Gonzalez, 2007. "Ownership and conditionality in IMF-supported programs: Back to Per Jacobsson’s time," The Review of International Organizations, Springer, vol. 2(4), pages 329-343, December.

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