Conditional Lending Under Altruism
25 Pages Posted: 15 Feb 2006
Date Written: June 2004
Abstract
We analyze how the altruism of an international financial institution (IFI) towards its low-income member countries (LICs) alters the effectiveness of its loans. We study IFI loans to a credit-constrained LIC. The IFI`s repayment policy is determined by the interplay of its concerns for the welfare of the loan recipient and its fiduciary responsibilities to creditor countries. If the IFI is unable to commit to repayment terms in advance, conditional loans are superior to unconditional loans. Thus, IFI altruism and the inability to commit are sufficient reasons to equip loans with conditions. Conditional loans produce an efficient allocation of resources, so altruism is not a fundamental reason that loans fail to increase welfare.
Keywords: IMF, conditionality, altruism, time consistency, Samaritan`s dilemma
JEL Classification: E61, F33, F34
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
IMF Programs: Who is Chosen and What are the Effects?
By Robert J. Barro and Jong-wha Lee
-
Economic Determinants of Fund Financial Arrangements
By Malcolm Knight and Julio A. Santaella
-
Does IMF Financing Result in Moral Hazard?
By Timothy Lane and Steven Phillips
-
Does the IMF Cause Moral Hazard and Political Business Cycles? Evidence from Panel Data
By Axel Dreher and Roland Vaubel
-
The Macroeconomic Effects of Fund-Supported Adjustment Programs: An Empirical Assessment
-
Conditionality and Ownership in IMF Lending: A Political Economy Approach
By Allan Drazen
-
Debt Relief for Low-Income Countries and the Hipc Initiative
By Anthony Boote and Kamau Thugge