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A Model of the IMF as a Coinsurance Arrangement

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

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.

Suggested Citation

  • Shim, Ilhyock & Sharma, Sunil & Chami, Ralph, 2008. "A Model of the IMF as a Coinsurance Arrangement," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 2, pages 1-41.
  • Handle: RePEc:zbw:ifweej:7281
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    File URL: http://dx.doi.org/10.5018/economics-ejournal.ja.2008-14
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    References listed on IDEAS

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    Cited by:

    1. Suman Basu & Ran Bi & Prakash Kannan, 2010. "Regional reserve pooling arrangements," Proceedings, Federal Reserve Bank of San Francisco, issue Oct.
    2. Barry Eichengreen & Poonam Gupta & Ashoka Mody, 2008. "Sudden Stops and IMF-Supported Programs," NBER Chapters,in: Financial Markets Volatility and Performance in Emerging Markets, pages 219-266 National Bureau of Economic Research, Inc.
    3. Barry Eichengreen, 2007. "Insurance Underwriter or Financial Development Fund: What Role for Reserve Pooling in Latin America?," Open Economies Review, Springer, vol. 18(1), pages 27-52, February.
    4. Anna Ivanova, 2006. "Outcomes-Based Conditionality: Its Role and Optimal Design," IMF Staff Papers, Palgrave Macmillan, vol. 53(si), pages 1-4.
    5. Jeronimo Zettelmeyer & Jonathan David Ostry & Olivier D Jeanne, 2008. "A Theory of International Crisis Lending and IMF Conditionality," IMF Working Papers 08/236, International Monetary Fund.
    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.

    More about this item

    Keywords

    IMF; coinsurance arrangement; moral hazard; Samaritan?s dilemma; King Lear?s dilemma;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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