A Model of the Imf as a Coinsurance Arrangement

46 Pages Posted: 29 Nov 2010

See all articles by Ralph Chami

Ralph Chami

International Monetary Fund (IMF)

Sunil Sharma

George Washington University - Elliott School of International Affairs; International Monetary Fund (IMF)

Ilhyock Shim

Bank for International Settlements (BIS)

Multiple version iconThere are 4 versions of this paper

Date Written: 2007

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.

Keywords: IMF, coinsurance arrangement, moral hazard, Samaritan´s dilemma, King Lear´s dilemma

JEL Classification: G22, F02, D82, F33

Suggested Citation

Chami, Ralph and Sharma, Sunil and Shim, Ilhyock, A Model of the Imf as a Coinsurance Arrangement (2007). Economics Discussion Paper No. 2007-26, Available at SSRN: https://ssrn.com/abstract=1716387 or http://dx.doi.org/10.2139/ssrn.1716387

Ralph Chami (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6039 (Phone)
202-623-6068 (Fax)

Sunil Sharma

George Washington University - Elliott School of International Affairs ( email )

Institute for International Economic Policy
1957 E Street NW
Washington, DC 20052
United States

International Monetary Fund (IMF) ( email )

Research Department
700 19th Street NW
Washington, DC 20431
United States

Ilhyock Shim

Bank for International Settlements (BIS) ( email )

78F, Two International Finance Centre
8 Finance Street, Central
Hong Kong, n/a n/a
Hong Kong

HOME PAGE: http://www.bis.org/author/ilhyock_shim.htm

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