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Good Governance and Good Aid Allocation

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Author Info
Gil S. Epstein () (Bar-Ilan University)
Ira N. Gang () (Rutgers University)

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Abstract

We model the aid allocation decision where the donor government has announced that good governance is the criterion for receiving aid. Potential recipients must compete for the aid funds. The structure of the competition is important to the donor in terms of achieving good governance, and to the recipients in terms of what they receive. The leaders of potential recipient countries look at aid availability through this contest as part of the competing objectives they face – some good, some not good. The donor country prefers a contest under which the aid will only go to one country while the leaders of the receiving countries prefer that each country obtains the proportion of aid relative to its governance quality. If poverty reduction is an independent goal as well, a poverty trap may be created. With good governance as a criterion, donors may work through both bilateral and multilateral agencies.

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Publisher Info
Paper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 200627.

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Length: 20 pages
Date of creation: 01 Dec 2006
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Handle: RePEc:rut:rutres:200627

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Related research
Keywords: foreign aid; governance; rent seeking; decentralization;

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Find related papers by JEL classification:
O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General
O19 - Economic Development, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
F35 - International Economics - - International Finance - - - Foreign Aid

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  1. Gil S. Epstein & Ira N. Gang, 2006. "Contests, NGOs, and Decentralizing Aid," Review of Development Economics, Blackwell Publishing, vol. 10(2), pages 285-296, 05. [Downloadable!] (restricted)
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  2. Epstein, Gil S., 2000. "Personal productivity and the likelihood of electoral success of political candidates," European Journal of Political Economy, Elsevier, vol. 16(1), pages 95-111, March. [Downloadable!] (restricted)
  3. Feyzioglu, Tarhan & Swaroop, Vinaya & Zhu, Min, 1998. "A Panel Data Analysis of the Fungibility of Foreign Aid," World Bank Economic Review, Oxford University Press, vol. 12(1), pages 29-58, January.
  4. Heckelman, Jac & Knack, Stephen, 2005. "Foreign aid and market-liberalizing reform," Policy Research Working Paper Series 3557, The World Bank. [Downloadable!]
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  5. Gil Epstein & Shmuel Nitzan, 2006. "Reduced prizes and increased effort in contests," Social Choice and Welfare, Springer, vol. 26(3), pages 447-453, June. [Downloadable!] (restricted)
  6. Che, Yeon-Koo & Gale, Ian L, 1998. "Caps on Political Lobbying," American Economic Review, American Economic Association, vol. 88(3), pages 643-51, June. [Downloadable!] (restricted)
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  7. Arye L. Hillman & John G. Riley, 1987. "Politically Contestable Rents and Transfers," UCLA Economics Working Papers 452, UCLA Department of Economics. [Downloadable!]
  8. Baye, M.R. & Kovenock, D. & De Vries, C.G., 1992. "Rigging the Lobbying Process: An Application of the All- Pay Auction," Papers 9-92-2, Pennsylvania State - Department of Economics.
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  9. Mavrotas, George & Villanger, Espen, 2006. "Multilateral Aid Agencies and Strategic Donor Behaviour," Working Papers DP2006/02, World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  10. Ellingsen, Tore, 1991. "Strategic Buyers and the Social Cost of Monopoly," American Economic Review, American Economic Association, vol. 81(3), pages 648-57, June. [Downloadable!] (restricted)
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  11. Gang, Ira N. & Ali Khan, Haider, 1990. "Foreign aid, taxes, and public investment," Journal of Development Economics, Elsevier, vol. 34(1-2), pages 355-369, November. [Downloadable!] (restricted)
  12. Nitzan, Shmuel, 1994. "Modelling rent-seeking contests," European Journal of Political Economy, Elsevier, vol. 10(1), pages 41-60, May. [Downloadable!] (restricted)
  13. Gil S. Epstein & Shmuel Nitzan, 2006. "Effort and Performance in Public Policy Contests," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 8(2), pages 265-282, 05. [Downloadable!] (restricted)
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  14. Ira N. Gang & Haider Ali Khan, 1999. "Foreign aid and fiscal behavior in a bounded rationality model: Different policy regimes," Empirical Economics, Springer, vol. 24(1), pages 121-134. [Downloadable!] (restricted)
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