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- Publisher
- World Scientific Publishing Company
- Copyright
- Copyright ©
- Subject
- Macro and Finance
- ISSN
- 0217-5908
- eISSN
- 1793-6837
- DOI
- 10.1142/S0217590815500022
- Publisher site
- See Article on Publisher Site
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 either the size of future loans or the repayment terms on past loans, 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.
Journal
The Singapore Economic Review – World Scientific Publishing Company
Published: Mar 1, 2015
Keywords: Conditional lending human capital investment economic efficiency