Incentives in Development Lending: Technical Cooperation

Josepa Miquel-Florensa ()

No 111, OVE Working Papers from Inter-American Development Bank, Office of Evaluation and Oversight (OVE)

Abstract: This paper models incentives and information asymmetries between the different participants in multilateral development banks' decision process, namely borrowing countries, managers and the board of governors (with borrower and non-borrower members). We propose technical cooperation requirements as instruments for the board of governors to solve the moral hazard and adverse selection problems. We assume technical cooperation makes the probability of success not to depend on the agent's effort choice, as long as he provides effort, but on the principal's distribution of resources, and may also provide private benefits to the recipients. Moreover, the outcome of the agent's investment is a "public good" since is enjoyed in a non-rival fashion by both Board and agents. Using data on project performance reports from the IADB, we show that technical cooperation does have an impact on project results. Furthermore, we are able to differentiate for which projects, contract and recipients technical cooperation is more effective and relate the reported problems to the information asymmetries.

Keywords: Information assymetry; multilateral development; IDB; IADB; Moral Hazzard; Governance; Latin America (search for similar items in EconPapers)
JEL-codes: D82 F35 F53 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2011-01
New Economics Papers: this item is included in nep-cta and nep-ppm
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Persistent link: https://EconPapers.repec.org/RePEc:idb:ovewps:0111

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