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Foreign Aid in the Presence of Corruption: Differential Games among Donors

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  • Murray C. Kemp
  • Ngo Van Long

Abstract

We consider two dynamic games of foreign aid. Model 1 deals with the case where donor countries continually feel the warm glow from the act of giving. Model 2 postulates that donors will stop giving aid when a target level of development is reached. In Model 1 , there are multiple equilibria that can be Pareto ranked. In Model 2 , the equilibrium strategies are nonlinear functions of the level of development. The flow of aid falls at a faster and faster rate as the target is approached. An increase in corruption will increase the flow of aid. Copyright 2009 The Authors. Journal compilation 2009 Blackwell Publishing Ltd.

Suggested Citation

  • Murray C. Kemp & Ngo Van Long, 2009. "Foreign Aid in the Presence of Corruption: Differential Games among Donors," Review of International Economics, Wiley Blackwell, vol. 17(SI), pages 230-243, May.
  • Handle: RePEc:bla:reviec:v:17:y:2009:i:si:p:230-243
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    References listed on IDEAS

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    1. Kemp, Murray C & Long, Ngo Van & Shimomura, Koji, 1993. "Cyclical and Noncyclical Redistributive Taxation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(2), pages 415-429, May.
    2. Lane, Philip R & Tornell, Aaron, 1996. "Power, Growth, and the Voracity Effect," Journal of Economic Growth, Springer, vol. 1(2), pages 213-241, June.
    3. Alberto Alesina & Beatrice Weder, 2002. "Do Corrupt Governments Receive Less Foreign Aid?," American Economic Review, American Economic Association, vol. 92(4), pages 1126-1137, September.
    4. Ngo Van Long & Koji Shimomura & Harutaka Takahashi, 1999. "Comparing Open-loop With Markov Equilibria in a Class of Differential Games," The Japanese Economic Review, Japanese Economic Association, vol. 50(4), pages 457-469, December.
    5. Van Long, Ngo & Shimomura, Koji, 1998. "Some results on the Markov equilibria of a class of homogeneous differential games," Journal of Economic Behavior & Organization, Elsevier, vol. 33(3-4), pages 557-566, January.
    6. Tornell, Aaron & Velasco, Andes, 1992. "The Tragedy of the Commons and Economic Growth: Why Does Capital Flow from Poor to Rich Countries?," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1208-1231, December.
    7. Murray C. Kemp & Koji Shimomura, 2003. "A Theory of Involuntary Unrequited International Transfers," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 686-715, June.
    8. Ngo Long & Gerhard Sorger, 2006. "Insecure property rights and growth: the role of appropriation costs, wealth effects, and heterogeneity," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 28(3), pages 513-529, August.
    9. Philip R. Lane & Aaron Tornell, 1999. "The Voracity Effect," American Economic Review, American Economic Association, vol. 89(1), pages 22-46, March.
    10. Dockner,Engelbert J. & Jorgensen,Steffen & Long,Ngo Van & Sorger,Gerhard, 2000. "Differential Games in Economics and Management Science," Cambridge Books, Cambridge University Press, number 9780521637329, October.
    11. Kemp, Murray C. & Van Long, Ngo & Shimomura, Koji, 2001. "A differential game model of tariff war," Japan and the World Economy, Elsevier, vol. 13(3), pages 279-298, August.
    12. Maskin, Eric & Tirole, Jean, 2001. "Markov Perfect Equilibrium: I. Observable Actions," Journal of Economic Theory, Elsevier, vol. 100(2), pages 191-219, October.
    13. Shimomura, Koji, 1991. "The feedback equilibria of a differential game of capitalism," Journal of Economic Dynamics and Control, Elsevier, vol. 15(2), pages 317-338, April.
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    Cited by:

    1. Malokele Nanivazo & Sajal Lahiri, 2015. "Promoting Trade Liberalization: Theoretical Analysis of Foreign Aid as Prize," Review of Development Economics, Wiley Blackwell, vol. 19(3), pages 748-757, August.
    2. Van Long, Ngo, 2016. "The Impacts of Other-Regarding Preferences and Ethical Choice on Environmental Outcomes: A Review of the Literature," Strategic Behavior and the Environment, now publishers, vol. 6(1-2), pages 1-35, December.

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