Hostname: page-component-848d4c4894-4hhp2 Total loading time: 0 Render date: 2024-05-23T09:14:34.963Z Has data issue: false hasContentIssue false
  • English
  • Français

International donor agencies’ incentive structures and foreign aid effectiveness

Published online by Cambridge University Press:  11 July 2012

NARA F. MONKAM
NARA F. MONKAM*
Affiliation:
Department of Economics, University of Pretoria, Private bag X20, Hatfield, Pretoria, 0028, South Africa
*
*Email: nara.monkam@up.ac.za
Get access Rights & Permissions [Opens in a new window]

Abstract:

This paper examines in depth one of the potential causes of the low performance of foreign aid; in particular, the role incentive structures within international donor agencies could play in leading to ‘a push’ to disburse money. This pressure to disburse money is termed as the ‘Money-Moving Syndrome’ (MMS). The theoretical analysis in this paper relies on the principal–agent theory to explore how donor agencies' institutional incentive systems may affect the characteristics of an optimal and efficient incentive contract and thus give rise to the MMS. The basic framework of the principal–agent theory was innovatively adapted to fit the organizational settings of donor agencies. The model concludes that the extent to which a performance measure based on the amount of aid allocated within a specific period of time would lead to the MMS and affect aid effectiveness depends on the level of ‘institutional imperatives’, the degree of aid agency's accountability for effectiveness, the level of corruption in recipient countries and the degree of difficulty to evaluate development activities.

Type
Research Article
Information
Journal of Institutional Economics , Volume 8 , Issue 3 , September 2012 , pp. 399 - 427
Copyright
Copyright © Millennium Economics Ltd 2012

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Alesina, A. and Dollar, D. (2000), ‘Who Gives Foreign Aid to Whom and Why?’ Journal of Economic Growth, 5 (1): 33–63.CrossRefGoogle Scholar
Alesina, A. and Weder, B. (2002), ‘Do Corrupt Governments Receive Less Foreign Aid?’ The American Economic Review, 92 (4): 1126–1137.CrossRefGoogle Scholar
Allen, J. (2006), ‘Aid and Delegation: The Logic of Agent Selection by Donor Countries’, University of California, School of International Relations and Pacific Studies Working paper. Seminar Paper. Jacob E. Allen. 11 May 2006Google Scholar
Baker, G. (1992), ‘Incentive Contracts and Performance Measurement’, The Journal of Political Economy, 100 (3): 598–614.CrossRefGoogle Scholar
Baker, G., Gibbons, R. and Murphy, K. (1993), ‘Subjective Performance Measures in Optimal Incentive Contracts’, Working Paper No. 4480: NBER Working Paper Series.CrossRefGoogle Scholar
Barnett, M. and Finnemore, M. (1999), ‘The Politics, Power, and Pathologies of International Organizations’, International Organization, 53 (4): 699–732.CrossRefGoogle Scholar
Birdsall, N. (2004), ‘Seven Deadly Sins: Reflections on Donor Failings’, Washington, DC: Center for Global Development Working Paper No 50.CrossRefGoogle Scholar
Boone, P. (1996), ‘Politics and the Effectiveness of Foreign Aid’, European Economic Review, 40 (2): 289–329.CrossRefGoogle Scholar
Bourguignon, F. and Sundberg, M. (2007), ‘Aid Effectiveness – Opening the Black Box’, In The World Bank Research E-Newsletter, February 2007.CrossRefGoogle Scholar
Burnside, C. and Dollar, D. (2000), ‘Aid, Policies, and Growth’, The American Economic Review, 90 (4): 847–868.CrossRefGoogle Scholar
Courty, P. and Marschke, G. (2003), ‘Dynamics of Performance Measurement Systems’, State University of New York at Albany, Department of Economics, Discussion Papers.Google Scholar
Crawford, P. (2004), Aiding Aid: A Monitoring & Evaluation Framework to Enhance International Aid Effectiveness. Institute for sustainable futures. Sidney: University of Technology.Google Scholar
Dichter, T. (2003), Despite Good Intentions: Why Development Assistance to the Third World has Failed. Boston: University of Massachusetts Press.Google Scholar
Easterly, W. (2006), The White Man's Burden. Why the West's Efforts to Aid the Rest have Done so Much Ill and so Little Good. New York: The Penguin Press.Google Scholar
Ellerman, D. (2005), Helping People Help Themselves: From the World Bank to An Alternative Philosophy of Development Assistance. Ann Arbor, MI: The University of Michigan Press.CrossRefGoogle Scholar
Fleck, R. and Kilby, C. (2005a), ‘How do Political Changes Influence us Bilateral Aid Allocations? Evidence from Panel Data’, Vassar College Economics Working Paper No 67.CrossRefGoogle Scholar
Fleck, R. and Kilby, C. (2005b), ‘World Bank Independence: A Model and Statistical Analysis of US Influence’, Vassar College of Economics Working Paper No 53.Google Scholar
Frey, B., Horn, H., Persson, T. and Schneider, F. (1985), ‘A Formulation and Test of a Simple Model of World Bank Behavior’, Weltwirtschaftliches Archiv, 121 (3): 438–447.CrossRefGoogle Scholar
Frey, B. and Schneider, F. (1986), ‘Competing Models of International Lending Activities’, Journal of Development Economics, 20 (2): 225–245.CrossRefGoogle Scholar
Gibbons, R. (1998), ‘Incentives in Organizations’, The Journal of Economic Perspectives, 12 (4): 115–132.CrossRefGoogle Scholar
Gibson, C., Andersson, K., Ostrom, E. and Shivakumar, S. (2005), The Samaritan's Dilemma: The Political Economy of Development Aid, New York: Oxford University Press.CrossRefGoogle Scholar
Hancock, G. (1989), Lords of Poverty: The Power, Prestige, and Corruption of the International Aid Business, New York: Atlantic Monthly Press.Google Scholar
Kilby, C. (2006), ‘Donor influence in Multilateral Development Banks: The Case of the Asian Development Bank’, Vassar College Economics Working Paper No. 70.Google Scholar
Klitgaard, R. (1991), Tropical Gangsters: One Man's Experience with Development and Decadence in Deepest Africa, New York: Basic Books, a Division of Harper Collins Publishers.Google Scholar
Lancaster, C. (1999), Aid to Africa: So Much to Do, So Little Done, Chicago & London: The University of Chicago Press.Google Scholar
Limodio, N. (2011), ‘The Success of Infrastructure Projects in Low-Income Countries and the Role of Selectivity’, Policy Research Working Paper No 5694, Washington, DC: World Bank.CrossRefGoogle Scholar
Lindsay, C. M. (1976), ‘A Theory of Government Enterprise’, The Journal of Political Economy, 84 (5): 1061–1078.CrossRefGoogle Scholar
Martens, B., Mummert, U., Murrell, P. and Seabright, P. (2002), The Institutional Economics of Foreign Aid, Cambridge, UK: Cambridge University Press.CrossRefGoogle Scholar
Martinez-Vazquez, J., Qiao, B. and Xu, Y. (2005), ‘Pocketing and Deceiving: The Behavior of the Delivery Agency in a Donor-Delivery Agency-Recipient Organization’, International Study Program of Economics Department, Georgia State University and Economics Department, Shanghai University.Google Scholar
Meltzer Commission Report (2000), International Financial Institutions Advisory Commission Report, Washington, DC: Congress of the United States, Joint Economic Committee.Google Scholar
Milner, H. (2006), ‘Why Multilateralism? Foreign Aid and Domestic Principal-Agent Problems’, in Hawkins, D., Lake, D., Nielson, D. and Tierney, M. (eds.), Delegation and Agency in International Organizations, Cambridge, New York: Cambridge University Press.Google Scholar
OECD/DAC (1999), ‘DAC Scoping Study of Donor Poverty Reduction Policies and Practices’, London: Overseas Development Institute.Google Scholar
OECD/DAC (2002), Glossary of Key Terms in Evaluation and Results Based Management. http://www.oecd.org (accessed 10 September 2007).Google Scholar
Ostrom, E., Gibson, C., Shivakumar, S. and Andersson, K. (2001), ‘Aid, Incentives, and Sustainability: An Institutional Analysis of Development Cooperation’, in Workshop in Political Theory and Policy Analysis, Indiana University. Bloomington, IN: Swedish International Development Agency (SIDA) Studies in Evaluation.Google Scholar
Pitman, G. K., Feinstein, O. N. and Ingram, G. K. (eds.) (2005), Evaluating Development Effectiveness, World Bank series on evaluation and development, volume 7: Transaction Publishers.Google Scholar
Prendergast, C. (1999), ‘The Provision of Incentives in Firms’, Journal of Economic Literature, 37 (1): 7–63.CrossRefGoogle Scholar
Radelet, S. (2003), Challenging Foreign Aid: A Policymaker's Guide to the Millennium Challenge Account, Content, Evaluation, and Harmonization. Absorptive Capacity: How Much is Too Much? Washington, DC: Center for Global Development.Google Scholar
Roodman, D. (2006), ‘An Index of Donor Performance’, Washington, DC: Center for Global Development Working Paper No 67.CrossRefGoogle Scholar
Svensson, J. (2000), ‘Foreign Aid and Rent-Seeking’, Journal of International Economics, 51 (2): 437–461.CrossRefGoogle Scholar
Tendler, J. (1975), Inside Foreign Aid, Baltimore, MD: Johns Hopkins University Press.Google Scholar
Transparency International (2007), ‘Poverty, Aid and Corruption’, Transparency International, the Global Coalition against Corruption. Discussion Paper.Google Scholar
van Praag, M. and Cools, K. (2001), ‘Performance Measure Selection: Aligning the Principal's Objective and the Agent's Effort’, University of Amsterdam, Department of Economics. Working Paper Series.Google Scholar
Wane, W. (2004), ‘The Quality of Foreign Aid: Country Selectivity or Donors Incentives?’ Washington, DC: World Bank, Policy Research Working Paper No 3325.CrossRefGoogle Scholar
Wenar, L. (2006), ‘Accountability in International Development Aid’, Ethics & International Affairs, 20 (1): 1–23.CrossRefGoogle Scholar
World Bank (1992), ‘Effective Implementation: Key to Development Impact’, Report of the Portfolio Management Task Force. Washington, DC: The World Bank.Google Scholar
World Bank (1998), Assessing Aid: What Works, What Doesn't, and Why, Washington, DC: The World Bank.Google Scholar