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Agency and communication in IMF conditional lending: theory and empirical evidence

  • Silvia Marchesi

    ()

  • Laura Sabani
  • Axel Dreher

The combination of special interest politics (agency problems) and informational asymmetries presents serious problems as the implementation of conditionality is concerned. In this paper we focus on the role that the transmission of information between the IMF and the borrowing government has for the design of the most efficient "incentive contract." Specifically, we find that when agency problems are especially severe, and/or IMF information is very valuable, a centralized control is indeed optimal (conventional conditionality). To the contrary, when local knowledge is more important than the agency bias we expect delegation (ownership) to be the optimal incentive scheme. Controlling for economic and political factors, we find that the number of IMF conditions declines in countries with a greater social complexity and increases with the bias of the countries’ authorities and in more open and transparent countries, which is consistent with the theoretical results.

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File URL: http://dems.unimib.it/repec/pdf/mibwpaper151.pdf
File Function: First version, 2009
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Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 151.

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Length: 51 pages
Date of creation: Feb 2009
Date of revision: Feb 2009
Handle: RePEc:mib:wpaper:151
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