Supervision and Project Performance: A Principal-Agent Approach

Lisa Chauvet, Paul Collier () and Andreas Fuster
Additional contact information
Paul Collier: Blavatnik School of Government, Oxford, International Growth Centre

No DT/2015/04, Working Papers from DIAL (Développement, Institutions et Mondialisation)

Abstract: This paper extends and applies principal-agent theory to the performance of donor projects. There is variation in the degree of divergence between the interests of the donor (the principal) and the recipient government (the agent). Further, the effort expended on observation of the agent is a control variable. We show that in a wide range of circumstances an implication of principal-agent theory is that the principal should put greater effort into observation the wider is the divergence of interest with the agent. We then test this prediction using data on World Bank project performance. We measure the degree of divergence between donor and recipient interests, as perceived by the donor, through a donor classification system of recipient governments. Consistent with the theory, we find that donor supervision of projects is significantly more effective in improving project performance where interests are widely divergent. However, donors do not put more effort into the supervision of projects in such cases.________________________________ Cet article étend et applique la théorie Principal-Agent à la performance des projets d’aide. Les intérêts du donneur (le principal) et du gouvernement receveur (l’agent) peuvent différer de manière importante. Dans le modèle, l’effort mis en oeuvre pour observer l’agent est une variable de contrôle. Nous montrons qu’une implication du modèle principal-agent est que le principal devrait faire d’autant plus d’effort pour observer l’agent quand ses intérêts divergent de ceux de l’agent. Nous testons ensuite ces prédictions en utilisant les données de performance des projets d’aide de la Banque mondiale. Nous mesurons le degré de divergence entre les intérêts du donneur et du receveur, telle que perçue par le donneur, par la classification des receveurs comme ‘partenariats difficiles’. Comme prédit par le modèle, nous trouvons que la supervision des projets d’aide par le donneur permet d’autant plus d’assurer le succès des projets que les intérêts du donneur et du receveur diffèrent. Toutefois, le donneur ne semble pas faire plus d’effort de supervision dans les partenariats difficiles.

Keywords: Principal-Agent theory; Aid projects; Supervision; Difficult partnerships. (search for similar items in EconPapers)
JEL-codes: D86 F35 O19 O22 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2015-02
New Economics Papers: this item is included in nep-hrm and nep-ppm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Supervision and Project Performance: A Principal-Agent Approach (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:dia:wpaper:dt201504

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