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Optimal decision rules in multilateral aid funds

Axel Dreher, Jenny Simon () and Justin Valasek ()
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Jenny Simon: German Federal Ministry of Labor and Social Affairs

The Review of International Organizations, 2021, vol. 16, issue 3, No 9, 689-719

Abstract: Abstract While existing research has suggested that delegating foreign aid allocation decisions to a multilateral aid fund may incentivize recipient countries to invest in bureaucratic quality, our analysis links the fund’s decision rules to recipient-country investment by explicitly modeling the decision-making within multilateral aid funds. We find that majority rule induces stronger competition between recipients, resulting in higher investments in bureaucratic quality. Despite this advantage, unanimity can still be optimal since the increased investment under majority comes at the cost of low aid allocation to countries in the minority. The qualitative predictions of our model rationalize our novel empirical finding that, relative to organizations that use a consensus rule, organizations that use majority are more responsive to changes in recipient-country quality.

Keywords: Aid allocation; Aid effectiveness; International organizations; Decision rules (search for similar items in EconPapers)
JEL-codes: F35 H87 O19 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s11558-020-09406-w

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