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Foreign Aid as Prize: Incentives for a Pro-Poor Policy

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  • Tejashree Sayanak
  • Sajal Lahiri

Abstract

We develop a theoretical model of foreign aid to analyse a method of disbursement of aid which induces the recipient government to follow a more pro-poor policy than it otherwise would do. In our two-period model, aid is given in the second period and the volume of it depends on the level of wellbeing of the target group in the first period. We find that this way of designing aid does increase the welfare of the poor.

Suggested Citation

  • Tejashree Sayanak & Sajal Lahiri, 2008. "Foreign Aid as Prize: Incentives for a Pro-Poor Policy," WIDER Working Paper Series RP2008-63, World Institute for Development Economic Research (UNU-WIDER).
    • Handle: RePEc:unu:wpaper:rp2008-63
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    References listed on IDEAS

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    Keywords

    Economic assistance and foreign aid; Game theory; Public welfare;
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