Buying Influence: Aid Fungibility in a Strategic Perspective

Rune Hagen

Review of Development Economics, 2006, vol. 10, issue 2, 267-284

Abstract: I study equilibria of non‐cooperative games between an aid donor and a recipient when there is conflict over the allocation of their combined budgets. The general conclusion is that a donor's influence over outcomes is increasing in the share of the available resources it controls; if this share is large enough, aid fungibility is not important as the donor achieves its most preferred allocation. The game‐theoretic approach to fungibility is contrasted with the traditional non‐strategic approach. I argue that the former is superior as it derives final allocations instead of assuming them, making analysis of the sources of influence over outcomes possible.

Date: 2006
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