Aid and Corruption: Do Donors Use Development Assistance to Provide the “Right” Incentives?

Alessia Isopi () and Fabrizio Mattesini

No 121, CEIS Research Paper from Tor Vergata University, CEIS

Abstract: In this paper, we focus on the determinants of the relationship between aid and corruption. We propose a static principal-agent model where a donor faces the problem of giving aid to a recipient country in which the phenomenon of corruption is widely spread. We distinguish among two different types of corruption: one, that we call endemic, that depends on the political and institutional environment of the recipient; the other, that we call aid related, is the consequence of moral hazard arising from the ability of corrupt burocracies to divert resources from their intended use. Through the design of appropriate contracts, donors can act only on the second type of corruption, contributing to reduce the entity of the phenomenon. We use the restrictions implied by our theoretical framework to test a model of aid allocation. For the majority of the donors (Germany, Italy, the Netherlands, Norway, Spain and the UK), we find some indication that efficiency considerations are taken into account in allocating aid. For some of them (Germany, Italy and the Netherlands), however, strategic/economic considerations are important, while the UK is also motivated by purely altruistic concerns. According to our model, Denmark and Japan are mainly driven by recipient needs, while the USA, and to a lesser extent France, allocate aid mainly on the basis of strategic/economic interests.

Keywords: Aid Allocation; Corruption; Moral Hazard. (search for similar items in EconPapers)
JEL-codes: D82 F35 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2008-07-14, Revised 2008-07-14
New Economics Papers: this item is included in nep-cta and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
https://ceistorvergata.it/RePEc/rpaper/RP121.pdf Main text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rtv:ceisrp:121

Ordering information: This working paper can be ordered from
CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
https://ceistorvergata.it

Access Statistics for this paper

More papers in CEIS Research Paper from Tor Vergata University, CEIS CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma. Contact information at EDIRC.
Bibliographic data for series maintained by Barbara Piazzi ().