Advanced Search
MyIDEAS: Login to save this paper or follow this series

The Politics of Aid Effectiveness: Why Better Tools can Make for Worse Outcomes

Contents:

Author Info

  • Olofsgård, Anders

    ()
    (Stockholm Institute of Transition Economics)

Abstract

The recent focus on impact evaluation within development economics has lead to increased pressure on aid agencies to provide "hard evidence", i.e. results from randomized controlled trials (RCTs), to motivate how they spend their money. In this paper I argue that even though RCTs can help us better understand if some interventions work or not, it can also reinforce an existing bias towards focusing on what generates quick, immediately verifiable and media-packaged results, at the expense of more long term and complex processes of learning and institutional development. This bias comes from a combination of public ignorance, simplistic media coverage and the temptation of politicians to play to the simplistic to gain political points and mitigate the risks of bad publicity. I formalize this idea in a simple principal-agent model with a government and an aid agency. The agency has two instruments to improve immediately verifiable outcomes; choose to spend more of the resources on operations rather than learning or select better projects/programs. I first show that if the government cares about long term development, then incentives will be moderated not to push the agency to neglect learning. If the government is impatient, though, then the optimal contract leads to stronger incentives, positively affecting the quality of projects/programs but also negatively affecting the allocation of resources across operations and learning. Finally, I show that in the presence of an impatient government, then the introduction of a better instrument for impact evaluation, such as RCTs, may actually decrease aid effectiveness by motivating the government to chose even stronger incentives.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://swopec.hhs.se/hasite/papers/hasite0016.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Stockholm Institute of Transition Economics, Stockholm School of Economics in its series SITE Working Paper Series with number 16.

as in new window
Length: 25 pages
Date of creation: 27 Jun 2012
Date of revision:
Handle: RePEc:hhs:hasite:0016

Contact details of provider:
Postal: Stockholm Institute of Transition Economics, Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden
Phone: (+46 8) 736 9670
Fax: (+46 8) 31 64 22
Web page: http://www.hhs.se/site/
More information through EDIRC

Related research

Keywords: Foreign aid; principal agent; political economy;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Nancy Birdsall & Homi Kharas & Ayah Mahgoub & Rita Perakis, 2010. "Quality of Official Development Assistance Assessment," Working Papers id:3228, eSocialSciences.
  2. Knack, Stephen & Rahman, Aminur, 2007. "Donor fragmentation and bureaucratic quality in aid recipients," Journal of Development Economics, Elsevier, Elsevier, vol. 83(1), pages 176-197, May.
  3. Daron Acemoglu, 2010. "Theory, General Equilibrium, and Political Economy in Development Economics," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 24(3), pages 17-32, Summer.
  4. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 7(0), pages 24-52, Special I.
  5. Abhijit Vinayak Banerjee & Alice H. Amsden & Robert H. Bates & Jagdish Bhagwati & Angus Deaton & Nicholas Stern, 2007. "Making Aid Work," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262026155, December.
  6. Rodrik, Dani & Subramanian, Arvind & Trebbi, Francesco, 2002. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3643, C.E.P.R. Discussion Papers.
  7. Angus S. Deaton, 2009. "Instruments of development: Randomization in the tropics, and the search for the elusive keys to economic development," NBER Working Papers 14690, National Bureau of Economic Research, Inc.
  8. Esther Duflo & Pascaline Dupas & Michael Kremer, 2008. "Peer Effects, Teacher Incentives, and the Impact of Tracking: Evidence from a Randomized Evaluation in Kenya," NBER Working Papers 14475, National Bureau of Economic Research, Inc.
  9. Ravallion Martin, 2009. "Should the Randomistas Rule?," The Economists' Voice, De Gruyter, De Gruyter, vol. 6(2), pages 1-5, February.
  10. Edward Miguel & Michael Kremer, 2004. "Worms: Identifying Impacts on Education and Health in the Presence of Treatment Externalities," Econometrica, Econometric Society, Econometric Society, vol. 72(1), pages 159-217, 01.
  11. Dean S. Karlan & Jonathan Zinman, 2005. "Observing Unobservables: Identifying Information Asymmetries with a Consumer Credit Field Experiment," Working Papers, Economic Growth Center, Yale University 911, Economic Growth Center, Yale University.
  12. Paul Glewwe & Michael Kremer & Sylvie Moulin, 2007. "Many Children Left Behind? Textbooks and Test Scores in Kenya," NBER Working Papers 13300, National Bureau of Economic Research, Inc.
  13. Gustavo J. Bobonis & Edward l Miguel & Charu Puri-Sharma, 2006. "Anaemia and School Participation," Working Papers id:337, eSocialSciences.
  14. Martens,Bertin & Mummert,Uwe & Murrell,Peter & Seabright,Paul, 2002. "The Institutional Economics of Foreign Aid," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521808187.
  15. Abhijit V. Banerjee & Esther Duflo, 2008. "The Experimental Approach to Development Economics," NBER Working Papers 14467, National Bureau of Economic Research, Inc.
  16. Reinikka, Ritva & Svensson, Jakob, 2004. "Working for God?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4214, C.E.P.R. Discussion Papers.
  17. William Easterly & Tobias Pfutze, 2008. "Where Does the Money Go? Best and Worst Practices in Foreign Aid," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 22(2), pages 29-52, Spring.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:hhs:hasite:0016. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Evelina Bonnier).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.