Optimal management of transfers: An odd paradox
François Bourguignon and
Journal of Public Economics, 2018, vol. 162, issue C, 143-157
This paper considers the case of transfers when there exists a serious preference misalignment between the transfer-maker and the beneficiary. The former wants to reduce the resulting outcome discrepancy through monitoring the use of the transfer and imposing sanctions if the discrepancy proves too large. This external discipline combines with the ’internal discipline’ of the beneficiary, that is his/her willingness and ability to align with the transfer-maker's objective. Besides the fact that costs of monitoring and sanctioning are explicitly taken into account, an original feature of our model specification is that the two types of discipline are made comparable: they can be summed up to obtain an aggregate discipline. We show that, paradoxically, an (exogenous) improvement of internal discipline may be over-compensated by a fall of external discipline. Total discipline thus decreases and the discrepancy between the actual and the intended uses of the transfer increases instead of decreasing. Another consequence is that the relationship between internal and total disciplines may be non-monotonic. These results generalize to alternative specifications of the basic model.
Keywords: Transfer; Preference misalignment; Incentives; Aid (search for similar items in EconPapers)
JEL-codes: I38 D02 D86 F35 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:162:y:2018:i:c:p:143-157
Access Statistics for this article
Journal of Public Economics is currently edited by R. Boadway and J. Poterba
More articles in Journal of Public Economics from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().