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A Model of the IMF as a Coinsurance Arrangement

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

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

  • Chami, Ralph & Sharma, Sunil & Shim, Ilhyock, 2007. "A Model of the IMF as a Coinsurance Arrangement," Economics Discussion Papers 2007-26, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwedp:5731
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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. Mr. Jeromin Zettelmeyer & Mr. Jonathan David Ostry & Mr. Olivier D Jeanne, 2008. "A Theory of International Crisis Lending and IMF Conditionality," IMF Working Papers 2008/236, International Monetary Fund.
    5. 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.
    6. Anna Ivanova, 2006. "Outcomes-Based Conditionality: Its Role and Optimal Design," IMF Working Papers 2006/128, International Monetary Fund.

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    More about this item

    Keywords

    IMF; coinsurance arrangement; moral hazard; Samaritan´s dilemma; King Lear´s dilemma;
    All these keywords.

    JEL classification:

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

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