Incentives for Conditional Aid Effectiveness

Candel-Sánchez Francisco ()
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Candel-Sánchez Francisco: Dept. de Fundamentos del Análisis Económico, Universidad de Murcia, 30100 Murcia, Spain

Journal of Globalization and Development, 2014, vol. 5, issue 1, 75-102

Abstract: Can sanctions against foreign aid donors enhance the credibility of conditional aid policies? If such policies suffer from time inconsistency, the answer is positive. This paper proposes a mechanism to overcome the lack of credibility of conditional aid donations to developing countries. A scheme of policy-dependent transfers to the donor country is shown to achieve an optimal commitment outcome by improving the credibility of conditional aid programs. The scheme is devised to cover situations in which the cost of structural reforms is information privately owned by the recipient government.

Keywords: conditional aid policy; credibility; mechanism design (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1515/jgd-2012-0018

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