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Development Aid in the Presence of Corruption: Differential Games among Donors

Author

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  • Murray C. Kemp
  • Ngo Van Long

Abstract

In this paper, we complement the work of Kemp and Shimomura (2002) by considering the case of many donors playing a dynamic non-cooperative game of foreign aid. We consider two models. Model 1 deals with the case where donor countries continually feel the warm glow of from the act of giving. Model 2 postulates that donors will stop giving aid when a target level of development is reached. One of the main results of Model 1 is that there are multiple equilibria that can be Pareto ranked. Another interesting result is that an increase in the level of corruption in the recipient country will reduce the aid level of the low aid equilibrium, but increase that of the high aid equilibrium. In Model 2, the equilibrium strategies are non-linear functions of the level of development. The flow of aid falls at a faster and faster rate as the target is approached. An increase in corruption will increase the flow of aid in this model. On présente deux modèles d'aide internationale dans lesquels deux pays avancés s'engagent dans un jeu dynamique. Dans le premier modèle, les aides apportent aux donateurs des gains moraux. On montre qu'une hausse de la corruption du pays sous-développé peut augmenter les aides. Il y a une multiplicité d'équilibres de Nash, qui peuvent être ordonnés sous le critère de Pareto. Dans le deuxième modèle, les pays donateurs cessent de donner aussitôt que le niveau du développement atteint un but fixé. On montre que l'équilibre de ce modèle implique que le flux d'aide devient de plus en plus faible au fur et à mesure que le niveau de développement s'approche du but fixé. Les pays avancés donnent plus si le taux de corruption augmente.

Suggested Citation

  • Murray C. Kemp & Ngo Van Long, 2007. "Development Aid in the Presence of Corruption: Differential Games among Donors," CIRANO Working Papers 2007s-23, CIRANO.
  • Handle: RePEc:cir:cirwor:2007s-23
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    File URL: http://www.cirano.qc.ca/files/publications/2007s-23.pdf
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    References listed on IDEAS

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    1. Murray C. Kemp & Koji Shimomura, 2003. "A Theory of Involuntary Unrequited International Transfers," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 686-715, June.
    2. Ngo Long & Gerhard Sorger, 2006. "Insecure property rights and growth: the role of appropriation costs, wealth effects, and heterogeneity," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 28(3), pages 513-529, August.
    3. Van Long, Ngo & Shimomura, Koji, 1998. "Some results on the Markov equilibria of a class of homogeneous differential games," Journal of Economic Behavior & Organization, Elsevier, vol. 33(3-4), pages 557-566, January.
    4. Kemp, Murray C & Long, Ngo Van & Shimomura, Koji, 1993. "Cyclical and Noncyclical Redistributive Taxation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(2), pages 415-429, May.
    5. Philip R. Lane & Aaron Tornell, 1999. "The Voracity Effect," American Economic Review, American Economic Association, vol. 89(1), pages 22-46, March.
    6. Alberto Alesina & Beatrice Weder, 2002. "Do Corrupt Governments Receive Less Foreign Aid?," American Economic Review, American Economic Association, vol. 92(4), pages 1126-1137, September.
    7. Dockner,Engelbert J. & Jorgensen,Steffen & Long,Ngo Van & Sorger,Gerhard, 2000. "Differential Games in Economics and Management Science," Cambridge Books, Cambridge University Press, number 9780521637329, April.
    8. Kemp, Murray C. & Van Long, Ngo & Shimomura, Koji, 2001. "A differential game model of tariff war," Japan and the World Economy, Elsevier, vol. 13(3), pages 279-298, August.
    9. Ngo Van Long & Koji Shimomura & Harutaka Takahashi, 1999. "Comparing Open-loop With Markov Equilibria in a Class of Differential Games," The Japanese Economic Review, Japanese Economic Association, vol. 50(4), pages 457-469, December.
    10. Maskin, Eric & Tirole, Jean, 2001. "Markov Perfect Equilibrium: I. Observable Actions," Journal of Economic Theory, Elsevier, vol. 100(2), pages 191-219, October.
    11. Shimomura, Koji, 1991. "The feedback equilibria of a differential game of capitalism," Journal of Economic Dynamics and Control, Elsevier, vol. 15(2), pages 317-338, April.
    12. Tornell, Aaron & Velasco, Andes, 1992. "The Tragedy of the Commons and Economic Growth: Why Does Capital Flow from Poor to Rich Countries?," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1208-1231, December.
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    More about this item

    Keywords

    development aid; corruption; dynamic games; differential games; aide internationale; corruption; jeux dynamiques; jeux différentiels;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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