Moral hazard and the composition of transfers: theory with an application to foreign aid

Arbeitspapier

The paper presents a theoretical and empirical analysis of a donor's choice of the composition of unrestricted and in-kind/restricted transfers to a recipient and how this composition is adjusted in response to changes in the moral hazard behavior of the recipient. In-kind or restricted transfers may be used, among others, to control a recipient's moral hazard behavior but may be associated with deadweight losses. Within the context of foreign aid, we use a canonical political agency model to construct a simple signaling game between a possibly corrupt politician in a recipient country and a donor to illustrate the donor's optimal choice of tied (restricted) and untied foreign aid. We clarify the condition under which a reduction in the recipient's moral hazard behavior (i.e., improvement in the level of governance) leads to a fall in the proportion of tied aid. We test the predictions of our theoretical analysis using data on the composition of foreign aid by multilateral and bilateral donors.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: CESifo Working Paper ; No. 1996

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Bureaucracy; Administrative Processes in Public Organizations; Corruption ; Foreign Aid ; International Fiscal Issues; International Public Goods ; Welfare, Well-Being, and Poverty: Government Programs; Provision and Effects of Welfare Programs
• Thema: Entwicklungshilfekonditionen ; Internationale Wirtschaftshilfe ; Governance-Ansatz ; Moral Hazard ; Theorie

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Amegashie, J. Atsu ; Ouattara, Bazoumana ; Strobl, Eric
• Ereignis: Veröffentlichung
• (wer): Center for Economic Studies and ifo Institute (CESifo)
• (wo): Munich
• (wann): 2007

Weitere Informationen

• Handle: http://hdl.handle.net/10419/26041
• Letzte Aktualisierung: 10.03.2025, 11:44 MEZ