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Aid allocation with optimal monitoring: Theory and policy

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  • Bourguignon, François
  • Platteau, Jean-Philippe

Abstract

We explore the implications of allowing a poverty-averse donor to monitor aid use within the familiar context of the needs vs. aid effectiveness tradeoff. The paper focuses on the optimal aid allocation between two countries when the donor simultaneously decides about aid shares and country-specific monitoring effort aimed at increasing the amount reaching the poor. Endogenizing aid effectiveness is shown to raise the poor’s income in the worse-governed country, yet not necessarily in the better-governed one, whereas the effect on country aid shares is essentially ambiguous. Those results still hold when the basic model is extended in various directions. Conventional aid allocation rules should be re-examined in their light.

Suggested Citation

  • Bourguignon, François & Platteau, Jean-Philippe, 2025. "Aid allocation with optimal monitoring: Theory and policy," Journal of Development Economics, Elsevier, vol. 172(C).
    • Handle: RePEc:eee:deveco:v:172:y:2025:i:c:s0304387824001135
    DOI: 10.1016/j.jdeveco.2024.103364
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    References listed on IDEAS

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    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • O22 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Project Analysis

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