Catalytic Finance: When Does It Work?
In a simple model of currency crises caused by creditor coordination failure, we show that bailouts that reduce ex post ineﬀiciency will sometimes create ex ante moral hazard but will sometimes enhance the incentives for governments to take preventative actions. This model helps us understand a debate about the role of the IMF in catalyzing lending to developing countries.
Morris, Stephen and Shin, Hyun Song, "Catalytic Finance: When Does It Work?" (2003). Cowles Foundation Discussion Papers. 1668.