Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
964768 | Journal of International Money and Finance | 2006 | 20 Pages |
Abstract
Costly crisis prevention has positive external effects, which leads to free-riding of governments on each other's efforts. “Ordinary” IMF loans aggravate existing externalities, reinforcing the under-investment problem. We consider the reform proposals of the “Meltzer commission” in both loan and insurance models and show how the IMF can eliminate country moral. The efficiency-ensuring loan policy accounts for given externalities and involves effort-contingent discounts on interests or the extension of credit volume. Similar results hold for the insurance framework. Ex ante participation requires that smaller countries be “subsidized” by large ones, or that IMF policy consider distributional aspects in addition to efficiency.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Thomas Weithöner,