Does it take two to tango? How to improve cooperation between the IMF and the World Bank

Despite a series of official agreements aimed at strengthening Bank-Fund cooperation, it is widely believed that coordination between the two organizations often falls short of what should be rationally expected. A greater pressure for conformity, required by the need of coordination, may contrast with the objective of enhancing policy adaptation to the specific conditions revealed by each institution’s specialized expertise. In this paper we present a theoretical model which, focusing on the quality of information transmission between the IMF and the WB, analyzes the impact of different governance structures on the degree of Bank-Fund cooperation. We compare the performance of a “delegation-scheme” with that of a “centralization-scheme.” A centralized structure better addresses the necessity of coordinating policy actions but greater consistency between the Bank and the Fund policy actions will be achieved at the expenses of a less satisfactory adaptation to “local conditions.” When the need for coordination is relevant, as it is generally the case for the Bank and the Fund operations, we find that a centralized governance structure allows to achieve a level of overall payoff greater than those of a decentralized one.