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Agency and Communication in IMF Conditional Lending: Theory and Empirical Evidence

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  • Marchesi, Silvia

    () (University of Milan Bicocca)

  • Sabani, Laura

    () (University of Florence)

  • Dreher, Axel

    () (Heidelberg University)

Abstract

We focus on the role that the transmission of information between a multilateral (the IMF) and a country has for the optimal design of conditional reforms. Our model predicts that when agency problems are especially severe, and/or IMF information is valuable, a centralized control is indeed optimal. To the contrary, when local knowledge is more important than the agency bias we expect delegation to dominate. Controlling for economic and political factors, our empirical tests show that the number of IMF conditions is lower in countries with a greater social complexity, while it increases with the bias of the countries’ authorities, openness, and transparency, consistently with the theory.

Suggested Citation

  • Marchesi, Silvia & Sabani, Laura & Dreher, Axel, 2009. "Agency and Communication in IMF Conditional Lending: Theory and Empirical Evidence," IZA Discussion Papers 4041, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp4041
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    More about this item

    Keywords

    communication; delegation; IMF conditionality; panel data;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • N2 - Economic History - - Financial Markets and Institutions

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