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Outcomes-Based Conditionality; Its Role and Optimal Design


  • Anna Ivanova


The paper employs a principal-agent framework to analyze the role and design of outcomesbased 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 the IMF loan is unsubsidized. The only role conditionality ends up playing in this case is that of an efficiency tool. 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 that IMF financing be subsidized.

Suggested Citation

  • Anna Ivanova, 2006. "Outcomes-Based Conditionality; Its Role and Optimal Design," IMF Working Papers 06/128, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:06/128

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    References listed on IDEAS

    1. Azam, Jean-Paul & Laffont, Jean-Jacques, 2003. "Contracting for aid," Journal of Development Economics, Elsevier, vol. 70(1), pages 25-58, February.
    2. Svensson, Jakob, 2000. "Foreign aid and rent-seeking," Journal of International Economics, Elsevier, vol. 51(2), pages 437-461, August.
    3. B. Douglas Bernheim & Michael D. Whinston, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, Oxford University Press, vol. 101(1), pages 1-31.
    4. 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.
    5. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
    6. Kenneth Rogoff, 1999. "International Institutions for Reducing Global Financial Instability," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 21-42, Fall.
    7. Jeffrey D. Sachs, 1999. "International lender of last resort? what are the alternatives?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 43(Jun), pages 181-203.
    8. Dixit, Avinash, 1997. "Power of Incentives in Private versus Public Organizations," American Economic Review, American Economic Association, vol. 87(2), pages 378-382, May.
    9. Drazen, Allan, 2002. "Conditionality and Ownership in IMF Lending: A Political Economy Approach," CEPR Discussion Papers 3562, C.E.P.R. Discussion Papers.
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    Cited by:

    1. 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.
    2. 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.
    3. repec:got:cegedp:86 is not listed on IDEAS

    More about this item


    Economic models; Fund; Subsidies; Outcomes-based conditionality; principal-agent; conditionality; paper; conditional lending;

    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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