Agency and communicaton in IMF conditional lending: Theory and empirical evidence: theory and empirical evidence

Abstract

We focus on the role that the transmission of information between a multilat-eral (the IMF) and a country has for the optimal design of conditional reforms. Our model predicts that when agency problems are especially severe, and/or IMF information is valuable, a centralized control is indeed optimal. To the contrary, when local knowledge is more important than the agency bias we expect delega-tion to dominate. Controlling for economic and political factors, our empirical tests show that the number of IMF conditions is lower in countries with a greater social complexity, while it increases with the bias of the countriesauthorities, openness, and transparency, consistently with the theory.