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Competition for environmental aid and aid fungibility

Author

Listed:
  • Hadjiyiannis, Costas
  • Hatzipanayotou, Panos
  • Michael, Michael S.

Abstract

Aid from environmentally conscious donors to developing recipients has long been thought of as a very promising way of preserving the global environment. However, aid is fungible and recipients cannot commit to using it for the purpose it was intended. We analyze competition for aid games with aid fungibility and cross-border pollution to gain insights on how to allocate environmental aid more efficiently. We set up a two stage game of two recipients receiving aid from a donor interested in minimizing pollution. Recipients cannot commit on the use of aid but they can commit on the infrastructure necessary to use aid for pollution abatement. We find that the success of competition for aid games depends critically on the degree of cross-border pollution. This determines whether it is more efficient to set up such games between recipients with little (or a lot of) cross-border pollution between them.

Suggested Citation

  • Hadjiyiannis, Costas & Hatzipanayotou, Panos & Michael, Michael S., 2013. "Competition for environmental aid and aid fungibility," Journal of Environmental Economics and Management, Elsevier, vol. 65(1), pages 1-11.
  • Handle: RePEc:eee:jeeman:v:65:y:2013:i:1:p:1-11
    DOI: 10.1016/j.jeem.2012.04.004
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    References listed on IDEAS

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    1. Svensson, Jakob, 2003. "Why conditional aid does not work and what can be done about it?," Journal of Development Economics, Elsevier, vol. 70(2), pages 381-402, April.
    2. Lahiri, Sajal & Raimondos-Moller, Pascalis, 1997. "Competition for aid and trade policy," Journal of International Economics, Elsevier, vol. 43(3-4), pages 369-385, November.
    3. Pack, Howard & Pack, Janet Rothenberg, 1993. "Foreign Aid and the Question of Fungibility," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 258-265, May.
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    5. Keen, Michael, 1989. "Pareto-improving indirect tax harmonisation," European Economic Review, Elsevier, vol. 33(1), pages 1-12, January.
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    8. Schweinberger, A.G. & Woodland, A.D., 2008. "The short and long run effects of tied foreign aid on pollution abatement, pollution and employment: A pilot model," Journal of Environmental Economics and Management, Elsevier, vol. 55(3), pages 310-325, May.
    9. Panos Hatzipanayotou & Sajal Lahiri & Michael S. Michael, 2000. "Can Cross-Border Pollution Reduce Pollution?," CESifo Working Paper Series 360, CESifo Group Munich.
    10. Costas Hadjiyiannis & Panos Hatzipanayotou & Michael S. Michael, 2009. "Public Pollution Abatement, Regional Capital Mobility, and Tax Competition," Southern Economic Journal, Southern Economic Association, vol. 75(3), pages 703-719, January.
    11. Copeland Brian R., 1994. "International Trade and the Environment: Policy Reform in a Polluted Small Open Economy," Journal of Environmental Economics and Management, Elsevier, vol. 26(1), pages 44-65, January.
    12. Sajal Lahiri & Pascalis Raimondos-Møller, 2004. "Donor Strategy under the Fungibility of Foreign Aid," Economics and Politics, Wiley Blackwell, vol. 16(2), pages 213-231, July.
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    Cited by:

    1. Mohamed Boly, 2018. "CO 2 mitigation in developing countries: the role of foreign aid," Working Papers halshs-01740881, HAL.
    2. Fabio Antoniou & Panos Hatzipanayotou & Michael S. Michael & Nikos Tsakiris, 2019. "On the Principles of Commodity Taxation under Interregional Externalities," University of Cyprus Working Papers in Economics 03-2019, University of Cyprus Department of Economics.

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