Dynamic Contracting for Development Aid Projects. Mechanism Design and High Performance Computation

Salim Rashid, Jamsheed Shorish () and Nahil Sobh
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Salim Rashid: Department of Economics, University of Illinois at Urbana-Champaign
Nahil Sobh: National Center for Supercomputing Applications, University of Illinois at Urbana-Champaign

No 196, Economics Series from Institute for Advanced Studies

Abstract: Developing economies share both microeconomic and macroeconomic characteristics which are often unique relative to their more developed counterparts. Indeed, many authors (e.g. Parente and Prescott 2000) have emphasized the role of institutional frictions within developing nations as a major determinant of economic growth (or the lack thereof). We examine one type of institutional friction, concerning the observation and reporting of information, and construct a straightforward dynamic contracting model of foreign donor investment in an aid project. We show that even within a simple class of such models, the dynamic contracting problem rapidly becomes computationally intensive, yet remains manageable when high performance. We argue that the natural modeling, simulation and testing environment to both analyze development aid issues and help generate effective aid policy should involve–indeed, rely upon–high performance computational resources.

Keywords: Development aid; Dynamic contracts; Computation (search for similar items in EconPapers)
JEL-codes: G20 C63 D86 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-afr and nep-ppm
Date: 2006-11
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