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Supervision and Project Performance: A Principal-Agent Approach

Author

Listed:
  • Lisa Chauvet

    (LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

  • Paul Collier

    (Oxford University - Sir William Dunn School of Pathology [Oxford])

  • Andreas Fuster

    (Federal Reserve Bank of New-York - 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.

Suggested Citation

  • Lisa Chauvet & Paul Collier & Andreas Fuster, 2017. "Supervision and Project Performance: A Principal-Agent Approach," Working Papers hal-01516966, HAL.
    • Handle: RePEc:hal:wpaper:hal-01516966
    Note: View the original document on HAL open archive server: https://hal.science/hal-01516966
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    References listed on IDEAS

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    3. Axel Dreher & Stephan Klasen & James Raymond Vreeland & Eric Werker, 2013. "The Costs of Favoritism: Is Politically Driven Aid Less Effective?," Economic Development and Cultural Change, University of Chicago Press, vol. 62(1), pages 157-191.
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    7. Kilby, Christopher, 2000. "Supervision and performance: the case of World Bank projects," Journal of Development Economics, Elsevier, vol. 62(1), pages 233-259, June.
    8. Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, vol. 80(1), pages 123-129, July.
    9. 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.
    10. Isham, Jonathan & Kaufmann, Daniel & Pritchett, Lant H, 1997. "Civil Liberties, Democracy, and the Performance of Government Projects," The World Bank Economic Review, World Bank, vol. 11(2), pages 219-242, May.
    11. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Bourguignon, François & Platteau, Jean-Philippe, 2018. "Optimal management of transfers: An odd paradox," Journal of Public Economics, Elsevier, vol. 162(C), pages 143-157.
    2. 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.
    3. 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.
    4. François Bourguignon & Jean-Philippe Platteau, 2013. "Optimal Discipline in Donor-Recipient Relationships -Reframing the Aid Effectiveness Debate," Working Papers halshs-00960570, HAL.
    5. 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.
    6. 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.
    7. Svea Koch & Stefan Leiderer & Jörg Faust & Nadia Molenaers, 2017. "The rise and demise of European budget support: political economy of collective European Union donor action," Development Policy Review, Overseas Development Institute, vol. 35(4), pages 455-473, July.
    8. Kilby, Christopher, 2015. "Assessing the impact of World Bank preparation on project outcomes," Journal of Development Economics, Elsevier, vol. 115(C), pages 111-123.
    9. Christopher Kilby & Katharina Michaelowa, 2019. "What Influences World Bank Project Evaluations?," Springer Books, in: Nabamita Dutta & Claudia R. Williamson (ed.), Lessons on Foreign Aid and Economic Development, chapter 0, pages 109-150, Springer.
    10. 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.
    11. Angelo Antoci & Irene Brunetti & Pierluigi Sacco & Mauro Sodini, 2021. "Student evaluation of teaching, social influence dynamics, and teachers’ choices: An evolutionary model," Journal of Evolutionary Economics, Springer, vol. 31(1), pages 325-348, January.
    12. 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.
    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.

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    More about this item

    Keywords

    Principal-Agent theory; Aid projects; Difficult partnerships; Théorie Principal-Agent; Projets d’aide; Supervision; Partenariats Difficiles;
    All these keywords.

    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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