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A Model of the IMF as a Coinsurance Arrangement

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

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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File URL: http://dx.doi.org/10.5018/economics-ejournal.ja.2008-14
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File URL: http://econstor.eu/bitstream/10419/18027/1/economics_2008-14.pdf
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Article provided by Kiel Institute for the World Economy in its journal Economics: The Open-Access, Open-Assessment E-Journal.

Volume (Year): 2 (2008)
Issue (Month): ()
Pages: 1-41

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Handle: RePEc:zbw:ifweej:7281
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  20. Michael Mussa, 1999. "Reforming the International Financial Architecture: Limiting Moral Hazard and Containing Real Hazard," RBA Annual Conference Volume, in: David Gruen & Luke Gower (ed.), Capital Flows and the International Financial System Reserve Bank of Australia.
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