The IMF and the World Bank: The Role of Competition and Domain Dissent in Communication and Decision Making

Abstract

This paper focuses on the problem of information transmission between the World Bank and the International Monetary Fund, with communication modeled as cheap talk. I posit that the Fund and the Bank have strategically relevant and diverse expertise whose proper combination might provide a richer consideration and resolution of strategic issues. Although transparent sharing of all available information is in the best interest of the Fund's and the Bank's stakeholders, competitive pressures might hinder such a process, introducing biases into the two institutions' preferences, and distortions into the communication. According to intuition, a concern for conformity in their actions might mitigate the negative effects of competition. However, truthful communication will never be achieved and strategic uncertainty will persist as an important source of loss, even when both institutions agree on the importance of coordinating their actions.