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Limits of Conditionality in Poverty Reduction Programs

Author

Listed:
  • Tito Cordella

    (International Monetary Fund)

  • Giovanni Dell'Aricca

    (International Monetary Fund)

Abstract

When donors and recipients have different preferences over budgetary allocations, conditionality helps the implementation of donor-financed poverty reduction programs. If donors cannot perfectly monitor all recipients' actions, however, conditionality entails an inefficient allocation of resources. Under such conditions, the optimal amount of conditionality varies (often not monotonically) with the recipients' degree of social commitment. Finally, if recipients' preferences are not observable, conditionality can be used to prevent recipients with a weak commitment to poverty reduction from obtaining aid funds. This may, however, lead to further distortions in terms of resource allocation and to phenomena of “aid rationing.” Copyright 2002, International Monetary Fund

Suggested Citation

  • Tito Cordella & Giovanni Dell'Aricca, 2002. "Limits of Conditionality in Poverty Reduction Programs," IMF Staff Papers, Palgrave Macmillan, vol. 49(Special i), pages 68-86.
    • Handle: RePEc:pal:imfstp:v:49:y:2002:i:si:p:68-86
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    Cited by:

    1. Mr. Alex Mourmouras & Mr. Peter Rangazas, 2004. "Conditional Lending Under Altruism," IMF Working Papers 2004/100, International Monetary Fund.
    2. Mr. Tito Cordella & Mr. Giovanni Dell'Ariccia, 2003. "Budget Support Versus Project Aid," IMF Working Papers 2003/088, International Monetary Fund.
    3. Cordella, Tito & Missale, Alessandro, 2013. "To give or to forgive? Aid versus debt relief," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 504-528.
    4. Menzies, Gordon Douglas, 2008. "Can HIPCs Use Hyper-Incentives?," Review of Applied Economics, Lincoln University, Department of Financial and Business Systems, vol. 4(01-2), pages 1-12.
    5. Mr. Sanjeev Gupta & Michela Schena & Mr. Seyed Reza Yousefi, 2018. "Expenditure Conditionality in IMF-supported Programs," IMF Working Papers 2018/255, International Monetary Fund.
    6. Candel-Sánchez Francisco, 2014. "Incentives for Conditional Aid Effectiveness," Journal of Globalization and Development, De Gruyter, vol. 5(1), pages 75-102, June.
    7. Elisabeth Paul, 2006. "A Survey of the Theoretical Economic Literature on Foreign Aid," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 20(1), pages 1-17, May.
    8. HEPP, Ralf, 2010. "CONSEQUENCES OF DEBT RELIEF INITIATIVES IN THE 1990s," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 10(1).
    9. Temple, Jonathan R.W., 2010. "Aid and Conditionality," Handbook of Development Economics, in: Dani Rodrik & Mark Rosenzweig (ed.), Handbook of Development Economics, edition 1, volume 5, chapter 0, pages 4415-4523, Elsevier.
    10. Alexandros Mourmouras & Peter Rangazas, 2015. "International Lending And The Samaritan'S Dilemma," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 60(01), pages 1-22.
    11. Hulya Ulku & Mr. Tito Cordella, 2004. "Grants Versus Loans," IMF Working Papers 2004/161, International Monetary Fund.

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