THE SETTING

This book is about the institutions that guide the behaviour of persons involved in the implementation of foreign aid programmes. Following North (1990), it distinguishes between institutions and organisations. Institutions are the formal and informal rules of behaviour that constitute incentives for all agents involved in the aid delivery process; they affect the performance of foreign aid programmes. Organisations are the groups of persons that adhere to a particular set of these rules. In the case of aid, they include taxpayers and donor organisations, politicians, lobby groups, donor agencies and consultants in donor countries, and recipient organisations in beneficiary countries. This book analyses how these institutions affect the outcomes produced by organisations involved in the aid delivery process. It diverges from more traditional approaches to aid performance because it seeks to explain that performance in terms of incentives inside the aid delivery process, rather than recipient country policy performance. The proposed approach also differs from game-theoretic models that attempt to explain aid performance in terms of outcomes of strategic interactions between donors and recipients at macro-institutional level. This book goes down to micro-level decision-making processes and behaviour by agents working in donor agencies, subcontractors hired by these agencies and officials working in beneficiary country organisations. It will show that incentives and constraints for individual agents can diverge significantly from those of the organisation that they work for and thus lead to very different behavioural outcomes from those predicted by macro-institutional approaches.