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Samaritan's Dilemma, Time-Inconsistency and Foreign Aid: A Review of Theoretical Models

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Abstract

Aid by altruistic donors may induce recipients to reduce their own contribution to development efforts in order to elicit more aid from donors. Help by well-intentioned donors may reduce the welfare of needy. Donors may not be able to deter deviant recipients as any punishment involves reducing the welfare of recipients and thus the welfare of donors. This condition known as the Samaritan's Dilemma has played an important role in understanding the effects of foreign aid and the conduct and design of aid policies. The ineffectiveness of foreign aid and failure of aid-conditionalities to a significant extent can be traced to strategic interactions among donors and recipients. In this chapter, we review theoretical models which analyze the consequences of the Samaritan's Dilemma for foreign aid and its possible solutions. These models propose a number of solutions to this dilemma. The effectiveness of aid in spurring development process and reducing poverty can be enhanced by appropriately designing and implementing aid policies.

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  • Alok Kumar, 2014. "Samaritan's Dilemma, Time-Inconsistency and Foreign Aid: A Review of Theoretical Models," Department Discussion Papers 1405, Department of Economics, University of Victoria.
    • Handle: RePEc:vic:vicddp:1405
    Note: ISSN 1914-2838
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    More about this item

    Keywords

    Foreign Aid; Time-Inconsistency; Efficiency; Crowding-Out Effect of Aid; Samaritan's Dilemma;
    All these keywords.

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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