A Model of the Imf As a Coinsurance Arrangement

By Ralph Chami, Ilhyock Shim, Sunil Sharma

November 1, 2004

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Ralph Chami, Ilhyock Shim, and Sunil Sharma. A Model of the Imf As a Coinsurance Arrangement, (USA: International Monetary Fund, 2004) accessed December 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The paper shows that a coinsurance arrangement among countries can, in principle, play a useful role in helping countries bear the risks involved in developing their economies and integrating into the global financial system. The operation of the coinsurance arrangement is examined under different loan contracts offered by the IMF. The analysis suggests 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-induce higher effort by member countries to avoid and overcome crises-than an ex-post loan contract. Such ex ante contracts highlight the need for precommitment to contend with the Samaritan’s dilemma and time inconsistency. The paper also shows that state-contingent repayment schemes are needed to deal with King Lear's dilemma.

Subject: Financial institutions, Financial markets, Financial sector policy and analysis, National accounts

Keywords: Coinsurance arrangement, Conditionality, Country welfare, Global, IMF, IMF commitment, IMF contract, IMF help, IMF loan contract, Income shocks, International capital markets, King Lear’s dilemma, Loan contract, Loans, Moral hazard, Optimal contract, Personal income, Perspective-king Lear's dilemma, Policy effort, Samaritan’s dilemma, Surveillance country, Utility function, WP

Publication Details

Pages:

44
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2004/219
Stock No:

WPIEA2192004
ISBN:

9781451875201
ISSN:

1018-5941

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