Aid and Corruption: Do Donors Use Development Assistance to Provide the Right Incentives?Isopi Alessia and Fabrizio Mattesini () Departmental Working Papers from Tor Vergata University, CEIS Abstract: In this paper, we focus on the determinants of the relationship between aid and corruption. We propose a static principal-agent model where a donor faces the problem of giving aid to a recipient country in which the phenomenon of corruption is widely spread. We distinguish among two different types of corruption: one, labeled endemic, that depends on the political and institutional environment of the recipient and that donors feel they can hardly affect from the outside; the other, labeled aid dependent, that is the consequence of moral hazard arising from the ability of corrupt burocracies to divert resources from their intended use. Designing contracts that can induce the right incentives, donors can act on the second type of corruption, contributing to reduce the entity of the phenomenon. We use the restrictions implied by our theoretical framework to test a model of aid allocation. Only for three countries (UK, Norway and Spain), we find some clear indication that efficiency consideration are taken into account in allocating aid. For the other donors, aid allocation depends on a mix of altruistic motives and strategic/economic interests with, however, a prevalence of the latter over the first. New Economics Papers: this item is included in nep-cta Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: http://EconPapers.repec.org/RePEc:rtv:ceiswp:266 Access Statistics for this paper More papers in Departmental Working Papers from Tor Vergata University, CEIS |
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