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Supervision and Project Performance: A Principal-Agent Approach

Author

Listed:
  • Lisa Chauvet

    () (IRD, UMR DIAL, PSL, Université Paris-Dauphine)

  • Paul Collier

    () (Blavatnik School of Government, Oxford, International Growth Centre)

  • Andreas Fuster

    () (Federal Reserve Bank of New York)

Abstract

This paper extends and applies principal-agent theory to the performance of donor projects. There is variation in the degree of divergence between the interests of the donor (the principal) and the recipient government (the agent). Further, the effort expended on observation of the agent is a control variable. We show that in a wide range of circumstances an implication of principal-agent theory is that the principal should put greater effort into observation the wider is the divergence of interest with the agent. We then test this prediction using data on World Bank project performance. We measure the degree of divergence between donor and recipient interests, as perceived by the donor, through a donor classification system of recipient governments. Consistent with the theory, we find that donor supervision of projects is significantly more effective in improving project performance where interests are widely divergent. However, donors do not put more effort into the supervision of projects in such cases.________________________________ Cet article étend et applique la théorie Principal-Agent à la performance des projets d’aide. Les intérêts du donneur (le principal) et du gouvernement receveur (l’agent) peuvent différer de manière importante. Dans le modèle, l’effort mis en oeuvre pour observer l’agent est une variable de contrôle. Nous montrons qu’une implication du modèle principal-agent est que le principal devrait faire d’autant plus d’effort pour observer l’agent quand ses intérêts divergent de ceux de l’agent. Nous testons ensuite ces prédictions en utilisant les données de performance des projets d’aide de la Banque mondiale. Nous mesurons le degré de divergence entre les intérêts du donneur et du receveur, telle que perçue par le donneur, par la classification des receveurs comme ‘partenariats difficiles’. Comme prédit par le modèle, nous trouvons que la supervision des projets d’aide par le donneur permet d’autant plus d’assurer le succès des projets que les intérêts du donneur et du receveur diffèrent. Toutefois, le donneur ne semble pas faire plus d’effort de supervision dans les partenariats difficiles.

Suggested Citation

  • Lisa Chauvet & Paul Collier & Andreas Fuster, 2015. "Supervision and Project Performance: A Principal-Agent Approach," Working Papers DT/2015/04, DIAL (Développement, Institutions et Mondialisation).
  • Handle: RePEc:dia:wpaper:dt201504
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    References listed on IDEAS

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    Cited by:

    1. repec:bla:ecinqu:v:55:y:2017:i:4:p:1671-1688 is not listed on IDEAS
    2. Angelo Antoci & Irene Brunetti & Pierluigi Sacco & Mauro Sodini, 2017. "Student Evaluation of Teaching (SET), social influence dynamics, and teachers' choices: An evolutionary model," Discussion Papers 2017/225, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    3. Lodewijk Smets & Stephen Knack & Nadia Molenaers, 2013. "Political ideology, quality at entry and the success of economic reform programs," The Review of International Organizations, Springer, vol. 8(4), pages 447-476, December.
    4. Denizer, Cevdet & Kaufmann, Daniel & Kraay, Aart, 2013. "Good countries or good projects? Macro and micro correlates of World Bank project performance," Journal of Development Economics, Elsevier, vol. 105(C), pages 288-302.
    5. François Bourguignon & Jean-Philippe Platteau, 2013. "Optimal Discipline in Donor-Recipient Relationships -Reframing the Aid Effectiveness Debate," PSE - G-MOND WORKING PAPERS halshs-00960570, HAL.
    6. repec:spr:revint:v:12:y:2017:i:3:d:10.1007_s11558-016-9256-x is not listed on IDEAS
    7. Axel Dreher & Sarah Langlotz & Silvia Marchesi, 2017. "Information Transmission And Ownership Consolidation In Aid Programs," Economic Inquiry, Western Economic Association International, vol. 55(4), pages 1671-1688, October.
    8. repec:bla:devpol:v:35:y:2017:i:4:p:455-473 is not listed on IDEAS
    9. Kilby, Christopher, 2015. "Assessing the impact of World Bank preparation on project outcomes," Journal of Development Economics, Elsevier, vol. 115(C), pages 111-123.
    10. Christopher Kilby & Katharina Michaelowa, 2016. "What Influences World Bank Project Evaluations?," Villanova School of Business Department of Economics and Statistics Working Paper Series 26, Villanova School of Business Department of Economics and Statistics.
    11. Limodio, Nicola, 2011. "The success of infrastructure projects in low-income countries and the role of selectivity," Policy Research Working Paper Series 5694, The World Bank.
    12. David Bulman & Walter Kolkma & Aart Kraay, 2017. "Good countries or good projects? Comparing macro and micro correlates of World Bank and Asian Development Bank project performance," The Review of International Organizations, Springer, vol. 12(3), pages 335-363, September.
    13. Christopher Kilby, 2012. "Assessing the contribution of donor agencies to aid effectiveness: The impact of World Bank preparation on project outcomes," Villanova School of Business Department of Economics and Statistics Working Paper Series 20, Villanova School of Business Department of Economics and Statistics.
    14. Aart Kraay & Peter Murrell, 2016. "Misunderestimating Corruption," The Review of Economics and Statistics, MIT Press, vol. 98(3), pages 455-466, July.

    More about this item

    Keywords

    Principal-Agent theory; Aid projects; Supervision; Difficult partnerships.;

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • O22 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Project Analysis

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