IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper

Moral Hazard and the Composition of Transfers: Theory with an Application to Foreign Aid

  • J. Atsu Amegashie
  • Bazoumana Ouattara
  • Eric Strobl

The paper presents a theoretical and empirical analysis of a donor’s choice of the composition of unrestricted and in-kind/restricted transfers to a recipient and how this composition is adjusted in response to changes in the moral hazard behavior of the recipient. In-kind or restricted transfers may be used, among others, to control a recipient’s moral hazard behavior but may be associated with deadweight losses. Within the context of foreign aid, we use a canonical political agency model to construct a simple signaling game between a possibly corrupt politician in a recipient country and a donor to illustrate the donor’s optimal choice of tied (restricted) and untied foreign aid. We clarify the condition under which a reduction in the recipient’s moral hazard behavior (i.e., improvement in the level of governance) leads to a fall in the proportion of tied aid. We test the predictions of our theoretical analysis using data on the composition of foreign aid by multilateral and bilateral donors.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2007/wp-cesifo-2007-05/cesifo1_wp1996.pdf
Download Restriction: no

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1996.

as
in new window

Length:
Date of creation: 2007
Date of revision:
Handle: RePEc:ces:ceswps:_1996
Contact details of provider: Postal:
Poschingerstrasse 5, 81679 Munich

Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Web page: http://www.cesifo-group.de
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Fraker, Thomas & Moffitt, Robert, 1988. "The effect of food stamps on labor supply : A bivariate selection model," Journal of Public Economics, Elsevier, vol. 35(1), pages 25-56, February.
  2. Dollar, David & Alesina, Alberto, 2000. "Who Gives Foreign Aid to Whom and Why?," Scholarly Articles 4553020, Harvard University Department of Economics.
  3. Gebhard Flaig & Timo Wollmershäuser, 2007. "Does the Euro-zone Diverge? A Stress Indicator for Analyzing Trends and Cycles in Real GDP and Inflation," CESifo Working Paper Series 1937, CESifo Group Munich.
  4. Thorvaldur Gylfason, 2007. "The International Economics of Natural Resources and Growth," CESifo Working Paper Series 1994, CESifo Group Munich.
  5. Torsten Persson & Gérard Roland & Guido Tabellini, 1997. "Separation of Powers and Political Accountability," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1163-1202.
  6. Martens,Bertin & Mummert,Uwe & Murrell,Peter & Seabright,Paul, 2008. "The Institutional Economics of Foreign Aid," Cambridge Books, Cambridge University Press, number 9780521055390, June.
  7. Besley, Timothy & Coate, Stephen, 1991. "Public Provision of Private Goods and the Redistribution of Income," American Economic Review, American Economic Association, vol. 81(4), pages 979-84, September.
  8. Hopfensitz, Astrid & van Winden, Frans A.A.M., 2007. "Dynamic Choice, Independence, and Emotions," CEPR Discussion Papers 6038, C.E.P.R. Discussion Papers.
  9. Janeba, Eckhard, 2007. "Exports, unemployment and the welfare state," Center for European, Governance and Economic Development Research Discussion Papers 60, University of Goettingen, Department of Economics.
  10. Steinar Holden & Fredrik Wulfsberg, 2007. "Are real wages rigid downwards?," Working Paper 2007/01, Norges Bank.
  11. Besley, Timothy & Case, Anne, 1995. "Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition," American Economic Review, American Economic Association, vol. 85(1), pages 25-45, March.
  12. Moffitt, Robert, 1990. "Has State Redistribution Policy Grown More Conservative?," National Tax Journal, National Tax Association, vol. 43(2), pages 123-42, June.
  13. Byeongchan Seong & Sung K. Ahn & Peter Zadrozny, 2007. "Cointegration Analysis with Mixed-Frequency Data," CESifo Working Paper Series 1939, CESifo Group Munich.
  14. Robin Boadway, 1997. "Public Economics and the Theory of Public Policy," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 753-72, November.
  15. Bas Jacobs, 2007. "Real Options and Human Capital Investment," CESifo Working Paper Series 1982, CESifo Group Munich.
  16. Stephen Coate, 1987. "Cash Versus Direct Food Relief," Discussion Papers 724R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  17. Knack, Stephen & Rahman, Aminur, 2007. "Donor fragmentation and bureaucratic quality in aid recipients," Journal of Development Economics, Elsevier, vol. 83(1), pages 176-197, May.
  18. Volker Grossmann & Thomas Steger, 2007. "Anti-Competitive Conduct, In-House R&D, and Growth," CESifo Working Paper Series 1963, CESifo Group Munich.
  19. Rainald Borck & Matthias Wrede, 2007. "Commuting Subsidies with two Transport Modes," CESifo Working Paper Series 1972, CESifo Group Munich.
  20. Ines Macho-Stadler & David Perez-Castrillo, 2007. "Optimal Monitoring to Implement Clean Technologies when Pollution is Random," "Marco Fanno" Working Papers 0060, Dipartimento di Scienze Economiche "Marco Fanno".
  21. Thiess Buettner & Georg Wamser, 2007. "Intercompany Loans and Profit Shifting – Evidence from Company-Level Data," CESifo Working Paper Series 1959, CESifo Group Munich.
  22. Marco Pagano & Giovanni Immordino, 2007. "Optimal Regulation of Auditing," CESifo Economic Studies, CESifo, vol. 53(3), pages 363-388, September.
  23. Luis Otávio Façanha & Marcelo Resende, 2006. "Hierarchical Structure in Brazilian Industrial Firms: an Econometric Study," Economics Working Papers ECO2006/1, European University Institute.
  24. Mattias Ganslandt & Keith E. Maskus, 2007. "Wholesale Price Discrimination and Parallel Imports," CESifo Working Paper Series 1951, CESifo Group Munich.
  25. Mauro Ghinamo & Paolo Panteghini & Federico Revelli, 2007. "FDI Determination and Corporate Tax Competition in a Volatile World," CESifo Working Paper Series 1965, CESifo Group Munich.
  26. Lahiri, Sajal & Raimondos, Pascalis, 1995. "Welfare effects of aid under quantitative trade restrictions," Journal of International Economics, Elsevier, vol. 39(3-4), pages 297-315, November.
  27. Moffitt, Robert, 1992. "Incentive Effects of the U.S. Welfare System: A Review," Journal of Economic Literature, American Economic Association, vol. 30(1), pages 1-61, March.
  28. Poutvaara, Panu & Siemers, Lars-H. R., 2007. "Smoking and Social Interaction," Ruhr Economic Papers 3, Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI), Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
  29. Michael Funke & Michael Paetz, 2007. "Environmental Policy Under Model Uncertainty: A Robust Optimal Control Approach," CESifo Working Paper Series 1938, CESifo Group Munich.
  30. Per Pettersson-Lidbom & Mikael Priks, 2007. "Behavior under Social Pressure: Empty Italian Stadiums and Referee Bias," CESifo Working Paper Series 1960, CESifo Group Munich.
  31. Naércio Aquino Menezes Filho & Marc-Andreas Muendler, 2007. "Labor Reallocation in Response to Trade Reform," CESifo Working Paper Series 1936, CESifo Group Munich.
  32. Moffitt, Robert, 1983. "An Economic Model of Welfare Stigma," American Economic Review, American Economic Association, vol. 73(5), pages 1023-35, December.
  33. William Easterly, 2007. "Are aid agencies improving?," Economic Policy, CEPR;CES;MSH, vol. 22, pages 633-678, October.
  34. Yin-Wong Cheung & Dickson C. Tam & Matthew S. Yiu, 2008. "Does the Chinese interest rate follow the US interest rate?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 13(1), pages 53-67.
  35. Luis Gil-Alana & Antonio Moreno, 2012. "Fractional integration and structural breaks in U.S. macro dynamics," Empirical Economics, Springer, vol. 43(1), pages 427-446, August.
  36. Fahad Khalil & Jacques Lawarrée & Sungho Yun, 2007. "Bribery vs. Extortion: Allowing the Lesser of two Evils," CESifo Working Paper Series 1993, CESifo Group Munich.
  37. Redoano, Michela, 2003. "Fiscal Interactions Among European Countries," The Warwick Economics Research Paper Series (TWERPS) 680, University of Warwick, Department of Economics.
  38. Blackorby, Charles & Donaldson, David, 1988. "Cash versus Kind, Self-selection, and Efficient Transfers," American Economic Review, American Economic Association, vol. 78(4), pages 691-700, September.
  39. Qing Hong & Michael Smart, 2006. "In praise of tax havens: International tax planning and foreign direct investment," Working Papers tecipa-265, University of Toronto, Department of Economics.
  40. Frederick van der Ploeg, 2007. "Prudent Budgetary Policy: Political Economy of Precautionary Taxation," Economics Working Papers ECO2007/39, European University Institute.
  41. William Easterly, 2002. "The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262550423.
  42. Ilyana Kuziemko & Eric Werker, 2006. "How Much Is a Seat on the Security Council Worth? Foreign Aid and Bribery at the United Nations," Journal of Political Economy, University of Chicago Press, vol. 114(5), pages 905-930, October.
  43. Axel Dreher & Martin Gassebner & Lars-H. R. Siemers, 2007. "Does Terror Threaten Human Rights? Evidence from Panel Data," KOF Working papers 07-156, KOF Swiss Economic Institute, ETH Zurich.
  44. Doppelhofer, G. & Weeks, M., 2005. "Jointness of Growth Determinants," Cambridge Working Papers in Economics 0542, Faculty of Economics, University of Cambridge.
  45. Egger, Peter & Koethenbuerger, Marko & Smart, Michael, 2010. "Do fiscal transfers alleviate business tax competition? Evidence from Germany," Journal of Public Economics, Elsevier, vol. 94(3-4), pages 235-246, April.
  46. Thomas Eichner & Rüdiger Pethig, 2007. "Pricing the ecosystem and taxing ecosystem services: a general equilibrium approach," Volkswirtschaftliche Diskussionsbeiträge 128-07, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
  47. Robin Boadway, 1998. "The Mirrlees Approach to the Theory of Economic Policy," International Tax and Public Finance, Springer, vol. 5(1), pages 67-81, February.
  48. Kanbur, Ravi, 2006. "The economics of international aid," Handbook on the Economics of Giving, Reciprocity and Altruism, Elsevier.
  49. Schweinberger, A G, 1990. "On the Welfare Effects of Tied Aid," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 457-62, May.
  50. Frederick L. Joutz & Stephan Danninger, 2007. "What Explains Germany’s Rebounding Export Market Share?," IMF Working Papers 07/24, International Monetary Fund.
  51. Besley, Timothy & Coate, Stephen, 1992. "Workfare versus Welfare Incentive Arguments for Work Requirements in Poverty-Alleviation Programs," American Economic Review, American Economic Association, vol. 82(1), pages 249-61, March.
  52. Panu Poutvaara & Mikael Priks, 2007. "Unemployment and Gang Crime: Could Prosperity Backfire?," CESifo Working Paper Series 1944, CESifo Group Munich.
  53. Catherine Roux & Thomas von Ungern-Sternberg, 2007. "Leniency Programs in a Multimarket Setting: Amnesty Plus and Penalty Plus," CESifo Working Paper Series 1995, CESifo Group Munich.
  54. Mavrotas, George & Villanger, Espen, 2006. "Multilateral Aid Agencies and Strategic Donor Behaviour," Working Paper Series DP2006/02, World Institute for Development Economic Research (UNU-WIDER).
  55. Steven Radelet, 2004. "Aid Effectiveness and the Millennium Development Goals," Working Papers 39, Center for Global Development.
  56. Michele Bernasconi & Paola Profeta, 2007. "Redistribution or Education? The Political Economy of the Social Race," CESifo Working Paper Series 1934, CESifo Group Munich.
  57. Guglielmo Maria Caporale & Luis A. Gil-Alana, 2007. "A Multivariate Long-Memory Model with Structural Breaks," CESifo Working Paper Series 1950, CESifo Group Munich.
  58. Paul De Grauwe & Pablo Rovira Kaltwasser, 2007. "Modeling Optimism and Pessimism in the Foreign Exchange Market," CESifo Working Paper Series 1962, CESifo Group Munich.
  59. Marton, James & Wildasin, David E., 2007. "State government cash and in-kind benefits: Intergovernmental fiscal transfers and cross-program substitution," Journal of Urban Economics, Elsevier, vol. 61(1), pages 1-20, January.
  60. Kemp, Murray C & Kojima, Shoichi, 1985. "Tied Aid and the Paradoxes of Donor-Enrichment and Recipient-Impoverishment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(3), pages 721-29, October.
  61. Thomas Eichner & Rüdiger Pethig, 2007. "Efficient CO2 Emissions Control with National Emissions Taxes and International Emissions Trading," CESifo Working Paper Series 1967, CESifo Group Munich.
  62. Guglielmo Maria Caporale & Juncal Cunado & Luis A. Gil-Alana, 2007. "Deterministic versus Stochastic Seasonal Fractional Integration and Structural Breaks," CESifo Working Paper Series 1989, CESifo Group Munich.
  63. Burkhard Heer, 2007. "On the Modeling of the Income Distribution Business Cycle Dynamics," CESifo Working Paper Series 1945, CESifo Group Munich.
  64. Neil Bruce & Michael Waldman, 1988. "Transfers in Kind: Why They Can Be Efficient and Non-Paternalistic," UCLA Economics Working Papers 532, UCLA Department of Economics.
  65. Maizels, Alfred & Nissanke, Machiko K., 1984. "Motivations for aid to developing countries," World Development, Elsevier, vol. 12(9), pages 879-900, September.
  66. Andreas Haufler & Ian Wooton, 2007. "Competition for Firms in an Oligopolistic Industry: Do Firms or Countries Have to Pay?," CESifo Working Paper Series 1976, CESifo Group Munich.
  67. Steven Brakman & Charles van Marrewijk, 2007. "It’s a Big World After All," CESifo Working Paper Series 1964, CESifo Group Munich.
  68. Égert , Balázs & Leonard, Carol S., 2007. "Dutch disease scare in Kazakhstan: Is it real?," BOFIT Discussion Papers 9/2007, Bank of Finland, Institute for Economies in Transition.
  69. Anke Hoeffler & Scott Gates, 2004. "Global Aid Allocation: Are Nordic Donors Different?," Economics Series Working Papers WPS/2004-34, University of Oxford, Department of Economics.
  70. John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
  71. Woessmann, Ludger, 2007. "Fundamental Determinants of School Efficiency and Equity: German States as a Microcosm for OECD Countries," IZA Discussion Papers 2880, Institute for the Study of Labor (IZA).
  72. Nichols, Albert L & Zeckhauser, Richard J, 1982. "Targeting Transfers through Restrictions on Recipients," American Economic Review, American Economic Association, vol. 72(2), pages 372-77, May.
  73. Moffitt, Robert, 1989. "Estimating the Value of an In-Kind Transfer: The Case of Food Stamps," Econometrica, Econometric Society, vol. 57(2), pages 385-409, March.
  74. Karl Pedersen, 2001. "The Samaritan's Dilemma and the Effectiveness of Development Aid," International Tax and Public Finance, Springer, vol. 8(5), pages 693-703, November.
  75. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_1996. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Klaus Wohlrabe)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.