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

Samaritans, Rotten Kids and Policy Conditionality

Contents:

Author Info

  • Giulio Federico
Registered author(s):

    Abstract

    Donors who try to impose policy conditionality on countries receiving their aid commonly face con‡icting incentives between using aid to induce income-increasing reforms and using aid to assist low-income countries: this con‡ict can lead to a time-consistency problem. This paper o¤ers a contractual analysis of conditionality, showing how conditionality contracts are a¤ected by con‡icting donor incentives in the presence of limited commitment power. Conditionality is shown to survive in an environment with weak donor commitment power, and it can eliminate the ine¢ciency associated with the no-conditionality outcome. However, even when conditionality is successfully imposed by donors, there may be an inverse relationship between aid and reform across di¤erent aid recipients. Multi-recipient and hidden-information extensions of the baseline model are also considered.

    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://www.csae.ox.ac.uk/workingpapers/pdfs/2001-16text.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number WPS/2001-16.

    as in new window
    Length:
    Date of creation: 01 Sep 2001
    Date of revision:
    Handle: RePEc:oxf:wpaper:wps/2001-16

    Contact details of provider:
    Postal: Manor Rd. Building, Oxford, OX1 3UQ
    Email:
    Web page: http://www.economics.ox.ac.uk/
    More information through EDIRC

    Related research

    Keywords: foreign aid; conditionality; altruism.;

    Find related papers by JEL classification:

    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. Fudenberg, Drew & Maskin, Eric, 1986. "The Folk Theorem in Repeated Games with Discounting or with Incomplete Information," Econometrica, Econometric Society, Econometric Society, vol. 54(3), pages 533-54, May.
    2. Svensson, Jakob, 1997. "When is foreign aid policy credible : aid dependence and conditionality," Policy Research Working Paper Series 1740, The World Bank.
    3. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(5), pages S103-26, October.
    4. Meyer, Margaret A & Vickers, John, 1995. "Performance Comparisons and Dynamic Incentives," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1107, C.E.P.R. Discussion Papers.
    5. Alesina, Alberto & Dollar, David, 2000. " Who Gives Foreign Aid to Whom and Why?," Journal of Economic Growth, Springer, Springer, vol. 5(1), pages 33-63, March.
    6. Shleifer, Andrei & Summers, Lawrence H. & Bernheim, B. Douglas, 1986. "The Strategic Bequest Motive," Scholarly Articles 3721794, Harvard University Department of Economics.
    7. Bergstrom, Theodore C, 1989. "A Fresh Look at the Rotten Kid Theorem--and Other Household Mysteries," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(5), pages 1138-59, October.
    8. Baker, George & Gibbons, Robert & Murphy, Kevin J, 1994. "Subjective Performance Measures in Optimal Incentive Contracts," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(4), pages 1125-56, November.
    9. Olsen, Trond E & Torsvik, Gaute, 1993. "The Ratchet Effect in Common Agency: Implications for Regulation and Privatization," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 9(1), pages 136-58, April.
    10. Martin C. McGuire & Mancur Olson Jr., 1996. "The Economics of Autocracy and Majority Rule: The Invisible Hand and the Use of Force," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 72-96, March.
    11. Gary S. Becker, 1974. "A Theory of Social Interactions," NBER Working Papers 0042, National Bureau of Economic Research, Inc.
    12. Guesnerie, Roger & Laffont, Jean-Jacques, 1984. "A complete solution to a class of principal-agent problems with an application to the control of a self-managed firm," Journal of Public Economics, Elsevier, Elsevier, vol. 25(3), pages 329-369, December.
    13. Kyle Bagwell, 1992. "Commitment and Observability in Games," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1014, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    14. Pedersen, Karl R, 1996. " Aid, Investment and Incentives," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 98(3), pages 423-38.
    15. Laffont, Jean-Jacques & Tirole, Jean, 1986. "Using Cost Observation to Regulate Firms," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(3), pages 614-41, June.
    16. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, American Economic Association, vol. 64(3), pages 291-303, June.
    17. Henrik Hansen & Finn Tarp, 2000. "Aid effectiveness disputed," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 375-398.
    18. Lindbeck, Assar & Weibull, Jorgen W, 1988. "Altruism and Time Consistency: The Economics of Fait Accompli," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 96(6), pages 1165-82, December.
    19. Putnam, Robert D., 1988. "Diplomacy and domestic politics: the logic of two-level games," International Organization, Cambridge University Press, Cambridge University Press, vol. 42(03), pages 427-460, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Almuth Scholl, 2009. "Aid Effectiveness and Limited Enforceable Conditionality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(2), pages 377-391, April.
    2. Rodney Ramcharan, 2004. "Debt Hold Up and International Lending," Econometric Society 2004 North American Summer Meetings, Econometric Society 341, Econometric Society.
    3. Tito Cordella & Giovanni Dell'Aricca, 2002. "Limits of Conditionality in Poverty Reduction Programs," IMF Staff Papers, Palgrave Macmillan, vol. 49(Special i), pages 68-86.
    4. Rodney Ramcharan, 2003. "Reputation, Debt, and Policy Conditionality," IMF Working Papers 03/192, International Monetary Fund.
    5. Rodney Ramcharan, 2004. "Debt “Hold Up†and International Lending," Econometric Society 2004 Far Eastern Meetings, Econometric Society 462, Econometric Society.
    6. Rodney Ramcharan, 2002. "How Does Conditional Aid (Not) Work?," IMF Working Papers 02/183, International Monetary Fund.

    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:oxf:wpaper:wps/2001-16. 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: (Caroline Wise).

    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.