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Good Governance and Good Aid Allocation

  • Epstein, Gil S.


    (Bar-Ilan University)

  • Gang, Ira N.


    (Rutgers University)

We model the aid allocation decision where the donor government has announced that good governance is the criterion for receiving aid. Potential recipients must compete for the aid funds. The structure of the competition is important to the donor in terms of achieving good governance, and to the recipients in terms of what they receive. The leaders of potential recipient countries look at aid availability through this contest as part of the competing objectives they face – some good, some not good. The donor country prefers a contest under which the aid will only go to one country while the leaders of the receiving countries prefer that each country obtains the proportion of aid relative to its governance quality. If poverty reduction is an independent goal as well, a poverty trap may be created. With good governance as a criterion, donors may work through both bilateral and multilateral agencies.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3585.

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Length: 25 pages
Date of creation: Jul 2008
Date of revision:
Publication status: published in: Journal of Development Economics, 2009, 89(1), 12-18
Handle: RePEc:iza:izadps:dp3585
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  1. David Dollar & Craig Burnside, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September.
  2. Arye L. Hillman & John G. Riley, 1989. "Politically Contestable Rents And Transfers," Economics and Politics, Wiley Blackwell, vol. 1(1), pages 17-39, 03.
  3. Heckelman, Jac & Knack, Stephen, 2005. "Foreign aid and market-liberalizing reform," Policy Research Working Paper Series 3557, The World Bank.
  4. Baye, Michael R & Kovenock, Dan & de Vries, Casper G, 1993. "Rigging the Lobbying Process: An Application of the All-Pay Auction," American Economic Review, American Economic Association, vol. 83(1), pages 289-94, March.
  5. Anwar, Mumtaz & Michaelowa, Katharina, 2004. "The Political Economy of US Aid to Pakistan," HWWA Discussion Papers 302, Hamburg Institute of International Economics (HWWA).
  6. Epstein, Gil S., 2000. "Personal productivity and the likelihood of electoral success of political candidates," European Journal of Political Economy, Elsevier, vol. 16(1), pages 95-111, March.
  7. Feyzioglu, Tarhan & Swaroop, Vinaya & Zhu, Min, 1998. "A Panel Data Analysis of the Fungibility of Foreign Aid," World Bank Economic Review, World Bank Group, vol. 12(1), pages 29-58, January.
  8. Ira N. Gang & Haider Ali Khan, 1998. "Foreign Aid and Fiscal Behavior in a Bounded Rathionality Model: Different Policy Regimes," Departmental Working Papers 199812, Rutgers University, Department of Economics.
  9. Mark McGillivray & Simon Feeny & Niels Hermes & Robert Lensink, 2006. "Controversies over the impact of development aid: it works; it doesn't; it can, but that depends …," Journal of International Development, John Wiley & Sons, Ltd., vol. 18(7), pages 1031-1050.
  10. Collier, Paul & Dollar, David, 2002. "Aid allocation and poverty reduction," European Economic Review, Elsevier, vol. 46(8), pages 1475-1500, September.
  11. Nitzan, Shmuel, 1994. "Modelling rent-seeking contests," European Journal of Political Economy, Elsevier, vol. 10(1), pages 41-60, May.
  12. Sajal Lahiri & Katharina Michaelowa, 2006. "Editorial: The Political Economy of Aid," Review of Development Economics, Wiley Blackwell, vol. 10(2), pages 177-178, 05.
  13. Gang, Ira N. & Ali Khan, Haider, 1990. "Foreign aid, taxes, and public investment," Journal of Development Economics, Elsevier, vol. 34(1-2), pages 355-369, November.
  14. Gil Epstein & Shmuel Nitzan, 2006. "Reduced prizes and increased effort in contests," Social Choice and Welfare, Springer, vol. 26(3), pages 447-453, June.
  15. Ellingsen, Tore, 1991. "Strategic Buyers and the Social Cost of Monopoly," American Economic Review, American Economic Association, vol. 81(3), pages 648-57, June.
  16. Gil S. Epstein & Shmuel Nitzan, 2006. "Effort and Performance in Public Policy Contests," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 8(2), pages 265-282, 05.
  17. 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).
  18. Yeon-Koo Che & Ian Gale, 1998. "Caps on Political Lobbying," Microeconomics 9809003, EconWPA.
  19. Epstein, Gil S. & Gang, Ira N., 2005. "Contests, NGOs and Decentralizing Aid," IZA Discussion Papers 1711, Institute for the Study of Labor (IZA).
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