Discussion papers of the WZB serve to disseminate the research results of work in progress prior to publication to encourage the exchange of ideas and academic debate. Inclusion of a paper in the discussion paper series does not constitute publication and should not limit publication in any other venue. The discussion papers published by the WZB represent the views of the respective author(s) and not of the institute as a whole.

No 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.