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Incentives in Development Lending: Technical Cooperation

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  • Josepa Miquel-Florensa

    () (Toulouse School of Economics (ARQADE), Toulouse, France)

Abstract

This paper models incentives and information asymmetries between the different participants in multilateral development banks' decision process, namely borrowing countries, managers and the board of governors (with borrower and non-borrower members). We propose technical cooperation requirements as instruments for the board of governors to solve the moral hazard and adverse selection problems. We assume technical cooperation makes the probability of success not to depend on the agent's effort choice, as long as he provides effort, but on the principal's distribution of resources, and may also provide private benefits to the recipients. Moreover, the outcome of the agent's investment is a "public good" since is enjoyed in a non-rival fashion by both Board and agents. Using data on project performance reports from the IADB, we show that technical cooperation does have an impact on project results. Furthermore, we are able to differentiate for which projects, contract and recipients technical cooperation is more effective and relate the reported problems to the information asymmetries.

Suggested Citation

  • Josepa Miquel-Florensa, 2011. "Incentives in Development Lending: Technical Cooperation," OVE Working Papers 0111, Inter-American Development Bank, Office of Evaluation and Oversight (OVE).
  • Handle: RePEc:idb:ovewps:0111
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    References listed on IDEAS

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    1. Sinclair-Desgagne, Bernard, 1999. "How to Restore Higher-Powered Incentives in Multitask Agencies," Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(2), pages 418-433, July.
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    Keywords

    Information assymetry; multilateral development; IDB; IADB; Moral Hazzard; Governance; Latin America;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations

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