International Charity: For the Poor?

Maureen Kilkenny and Marie-Françoise Calmette

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: We show how international charity leads to reduced self-help, exacerbated internal income inequality, and less charity for needy countries when international funds transfer is costly and there are information asymmetries. Mechanism design techniques are used to analyze international income transfer programs in the context of moral hazard, principal-agent, and adverse selection problems. We show that the burden of information asymmetry is borne by the most needy even when charities design incentive contracts which limit informational rents.

Date: 2002-07-01
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Published in Economic Inquiry, July 2002, vol. 40 no. 3, pp. 497-507

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