The Political Economy of IMF Conditionality: A Common Agency Model

18 Pages Posted: 28 Dec 2005

See all articles by Wolfgang Mayer

Wolfgang Mayer

University of Cincinnati - McMicken College of Arts and Sciences - Department of Economics

Alexandros Mourmouras

International Monetary Fund (IMF) - Policy Development and Review Department

Abstract

The paper models the relationship between an aid-providing international financial institution (IFI) and an aid-receiving government whose economic policy choices are influenced by a domestic interest group. Two assistance schemes are evaluated: conditional aid in which the IFI makes assistance contingent on less-distorting economic policies and unconditional aid which is provided without such conditions. Conditional aid is shown to raise welfare of the receiving country and the world as a whole relative to unconditional aid. The paper also examines how conditional and unconditional aid schemes are influenced by the IFI's opportunity cost of providing assistance and the receiving government's political dependence on a domestic interest group.

Suggested Citation

Mayer, Wolfgang and Mourmouras, Alexandros, The Political Economy of IMF Conditionality: A Common Agency Model. Review of Development Economics, Vol. 9, No. 4, pp. 449-466, November 2005. Available at SSRN: https://ssrn.com/abstract=857760 or http://dx.doi.org/10.1111/j.1467-9361.2005.00287.x

Wolfgang Mayer (Contact Author)

University of Cincinnati - McMicken College of Arts and Sciences - Department of Economics ( email )

1202 Crosley
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Alexandros Mourmouras

International Monetary Fund (IMF) - Policy Development and Review Department ( email )

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Washington, DC 20431
United States
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202-589-5402 (Fax)

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