Outcomes-Based Conditionality: Its Role and Optimal Design

Author/Editor:

Anna Ivanova

Publication Date:

May 1, 2006

Electronic Access:

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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 employs a principal-agent framework to analyze the role and design of outcomesbased conditionality in the presence of market frictions and domestic opposition. The results suggest that outcomes-based conditionality is a good option for the IMF when opposition to reforms is relatively weak and when the IMF loan is unsubsidized. The only role conditionality ends up playing in this case is that of an efficiency tool. The benefits of outcomes-based conditionality in the presence of strong opposition are less clear, and using this conditionality as an incentive tool would require that IMF financing be subsidized.

Series:

Working Paper No. 2006/128

Subject:

Loans Market interest rates Tax incentives

English

Publication Date:

May 1, 2006

ISBN/ISSN:

9781451863888/1018-5941

Stock No:

WPIEA2006128

Pages:

25

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