Overcoming Barriers to Reform : On Incentive-Compatible International Assistance / Wolfgang Mayer, Alex Mourmouras.

Format:

Book

Government document

Author/Creator:

Mayer, Wolfgang.

Contributor:

Mourmouras, Alex.

Series:

IMF Working Papers; Working Paper ; No. 2007/231

IMF Working Papers

Language:

English

Subjects (All):

Economic assistance.

Economic development.

Physical Description:

1 online resource (30 p.)

Place of Publication:

Washington, D.C. : International Monetary Fund, 2007.

Language Note:

English

Summary:

International financial assistance (loans and grants) can potentially raise recipients' welfare in two ways, by affecting a direct resource transfer and by facilitating efficiency-enhancing reforms. In practice, barriers to reform limit the potential of assistance to deliver these two dividends. In this paper, we analyze assistance programs designed to ensure that recipient governments voluntarily adopt reforms and overcome barriers associated with: (i) the reaction of special interests to the prospect of reform; (ii) the possibility of default and political instability in the recipient country; and (iii) adverse selection and moral hazard. Reform barriers raise the cost of incentive-compatible assistance and may result either in no assistance being forthcoming or assistance that ensures repayment but not the implementation of reforms. Critical to the choice of assistance programs is the size of the rent accruing to special interests in the absence of reform and the limited liability rents needed to ensure that repayment terms do not threaten the country's political stability. Optimal assistance contracts feature flexible repayment terms related to real economic growth in recipient countries.

Contents:

Contents; I. Introduction; II. The Model; III. Economic Policy Distortions in the Presence of an Interest Group; IV. Time Line of Events and Decision Making; V. Accounting for the Possibility of Default; VI. Designing an Incentive-Compatible Loan Program; VII. Incentive-Compatible Loans with Limited Liability; VIII. The Consequences of Relaxing Incentive-Compatibility Constraints; IX. Conclusion; References

Notes:

"July 2007."

Includes bibliographical references.

Description based on print version record.

ISBN:

9786613831064

9781462374991

1462374999

9781452793498

1452793492

9781283518611

1283518619

9781451912487

145191248X