Incentives in Development Lending: Technical Cooperation
AbstractThis paper models incentives and information asymmetries between the different participants in multilateral development banks' decision process, namely borrowing countries, managers and the board of governors (with borrower and non-borrower members). We propose technical cooperation requirements as instruments for the board of governors to solve the moral hazard and adverse selection problems. We assume technical cooperation makes the probability of success not to depend on the agent's effort choice, as long as he provides effort, but on the principal's distribution of resources, and may also provide private benefits to the recipients. Moreover, the outcome of the agent's investment is a "public good" since is enjoyed in a non-rival fashion by both Board and agents. Using data on project performance reports from the IADB, we show that technical cooperation does have an impact on project results. Furthermore, we are able to differentiate for which projects, contract and recipients technical cooperation is more effective and relate the reported problems to the information asymmetries.
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Bibliographic InfoPaper provided by Inter-American Development Bank, Office of Evaluation and Oversight (OVE) in its series OVE Working Papers with number 0111.
Length: 24 pages
Date of creation: Jan 2011
Date of revision:
Information assymetry; multilateral development; IDB; IADB; Moral Hazzard; Governance; Latin America;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- F35 - International Economics - - International Finance - - - Foreign Aid
- F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-01-30 (All new papers)
- NEP-CTA-2011-01-30 (Contract Theory & Applications)
- NEP-PPM-2011-01-30 (Project, Program & Portfolio Management)
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.:
- Sinclair-Desgagne, Bernard, 1999. "How to Restore Higher-Powered Incentives in Multitask Agencies," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(2), pages 418-33, July.
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