Outcomes-Based Conditionality: Its Role and Optimal Design

25 Pages Posted: 21 Jun 2006

See all articles by Anna Ivanova

Anna Ivanova

International Monetary Fund (IMF) - European Department

Date Written: May 2006

Abstract

The paper employs a principal-agent framework to analyze the role and design of outcomes-based 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.

Keywords: Outcomes-based conditionality, principal-agent

JEL Classification: F33, D82

Suggested Citation

Ivanova, Anna, Outcomes-Based Conditionality: Its Role and Optimal Design (May 2006). IMF Working Paper No. 06/128, Available at SSRN: https://ssrn.com/abstract=910693

Anna Ivanova (Contact Author)

International Monetary Fund (IMF) - European Department ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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