Intermediation by aid agencies

Colin Rowat and Paul Seabright

No 04-22, Discussion Papers from Department of Economics, University of Birmingham

Abstract: This paper models aid agencies as financial intermediaries that do not make a financial return to depositors, since the depositors' concern is to transfer resources to investor-beneficiaries. This leads to a significant problem of verification of the agencies' activities. One solution to this problem is for an agency to employ altruistic workers at below-market wages: workers can monitor the agency's activity more closely than donors, and altruistic workers would not work at below-market rates unless the agency were gen- uinely transferring resources to bene¯ciaries. We consider conditions for this solution to be incentive compatible.

Keywords: signalling; non-profit; wage di®erential; donations; altruism; two-sided market (search for similar items in EconPapers)
JEL-codes: D21 D64 J31 L31 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2004-11
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