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Strategic Interaction, Aid Effectiveness And The Formation Of Aid Policies In Donor Nations

  • S. Mansoob Murshed

    (Utrecht School of Economics and the Institute of Social Studies, Utrecht University)

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    This paper examines some of the issues associated with the aid donor process arising from the theory of agency or principal-agent models and endogenous policy determination. The principals may be viewed as legislators and the agents as the aid agency. In addition to adverse selection and moral hazard the paper considers intrinsic sources of motivation for agents and the trade-off between adverse selection and moral hazard. It also considers multiple task agents, and situations where there are many principals with divergent objectives. The principals might be better off by making the tasks more complementary and trading in their differing objectives. The paper also considers the determinants of sustaining compromise over aid policies when different political factions in donor nations have competing interests with regard to recipients or overall aid strategy.

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    File URL: http://www.jed.or.kr/full-text/28-1/Murshed.PDF
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    Article provided by Chung-Ang Unviersity, Department of Economics in its journal Journal Of Economic Development.

    Volume (Year): 28 (2003)
    Issue (Month): 1 (June)
    Pages: 189-203

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    Handle: RePEc:jed:journl:v:28:y:2003:i:1:p:189-203
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    1. Murshed, S Mansoob & Sen, Somnath, 1995. "Aid Conditionality and Military Expenditure Reduction in Developing Countries: Models of Asymmetric Information," Economic Journal, Royal Economic Society, vol. 105(429), pages 498-509, March.
    2. Svensson, Jakob, 1998. "Foreign aid and rent-seeking," Policy Research Working Paper Series 1880, The World Bank.
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