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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

Suggested Citation

  • Anna Ivanova, 2006. "Outcomes-Based Conditionality: Its Role and Optimal Design," IMF Staff Papers, Palgrave Macmillan, vol. 53(si), pages 1-4.
  • Handle: RePEc:pal:imfstp:v::y:2006:i:si:p:4
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    Citations

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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," CESifo Working Paper Series 2574, CESifo.
    2. 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.
    3. Silva Marchesi & Laura Sabani & Axel Dreher, 2009. "Agency and communication in IMF conditional lending: theory and empirical evidence," Ibero America Institute for Econ. Research (IAI) Discussion Papers 183, Ibero-America Institute for Economic Research.
    4. Alex Mourmouras & Wolfgang Mayer, 2009. "International Financial Assistance: A Loan Mechanism‚ÄźDesign Approach," Economics and Politics, Wiley Blackwell, vol. 21(1), pages 126-158, March.
    5. repec:got:cegedp:86 is not listed on IDEAS

    More about this item

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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