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Supervision and Project Performance: A Principal-Agent Approach

Lisa Chauvet (), Paul Collier and Andreas Fuster ()
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Paul Collier: Oxford University - Sir William Dunn School of Pathology [Oxford]

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Abstract: This paper extends and applies principal-agent theory to the performance of donor projects. There is variation in the degree of divergence between the interests of the donor (the principal) and the recipient government (the agent). Further, the effort expended on observation of the agent is a control variable. We show that in a wide range of circumstances an implication of principal-agent theory is that the principal should put greater effort into observation the wider is the divergence of interest with the agent. We then test this prediction using data on World Bank project performance. We measure the degree of divergence between donor and recipient interests, as perceived by the donor, through a donor classification system of recipient governments. Consistent with the theory, we find that donor supervision of projects is significantly more effective in improving project performance where interests are widely divergent. However, donors do not put more effort into the supervision of projects in such cases.

Keywords: Principal-Agent theory; Aid projects; Difficult partnerships; Théorie Principal-Agent; Projets d’aide; Supervision; Partenariats Difficiles (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hrm and nep-ppm
Date: 2017-05-10
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01516966
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Working Paper: Supervision and Project Performance: A Principal-Agent Approach (2015) Downloads
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