The Institutional Economics of Foreign Aid

Martens, Bertin; Mummert, Uwe; Murrell, Peter; Seabright, Paul; Остром, Элинор

doi:10.1017/cbo9780511492563

Cited by 217 publications

(109 citation statements)

References 59 publications

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“…As discussed above, and in more detail below, best practices are measurable indicators that could allow observers to monitor donors, as one small contribution to overcoming the problem of missing feedback and accountability, a problem that is well-documented in the literature ([IMF and World Bank, 2005], [Martens, Mummert, Murrell, and Seabright, 2002] and [Easterly 2006]). We follow the established methodology on how to measure best practices taking into consideration some recent criticisms (for example, see BenYishay and Wiebe, 2009).…”

Section: Agency Best and Worst Practicesmentioning

confidence: 99%

Rhetoric versus Reality: The Best and Worst of Aid Agency Practices

2011

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Foreign aid critics, supporters, recipients and donors have produced eloquent rhetoric on the need for better aid practices -has this translated into reality? This paper attempts to monitor the best and worst of aid practices among bilateral, multilateral, and UN agencies. We create aid practice measures based on aid transparency, specialization, selectivity, ineffective aid channels and overhead costs. We rate donor agencies from best to worst on aid practices. We find that the UK does well among bilateral agencies, the US is below average, and Scandinavian donors do surprisingly poorly. The biggest difference is between the UN agencies, who mostly rank in the bottom half of donors, and everyone else. Average performance of all agencies on transparency, fragmentation, and selectivity is still very poor. The paper also assesses trends in best practices over time -we find modest improvement in transparency and more in moving away from ineffective channels. However, we find no evidence of improvements (and partial evidence of worsening) in specialization, fragmentation, and selectivity, despite escalating rhetoric to the contrary.

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Section: Agency Best and Worst Practicesmentioning

confidence: 99%

Rhetoric versus Reality: The Best and Worst of Aid Agency Practices

2011

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“…The report offers some explanations of the SIDA's resource-driven environment: the Swedish's commitment to increase aid allocations to reach 1% of GNP and the fear that uncommitted resources will be considered unnecessary and not re-budgeted in subsequent years. Martens et al (2002), using the principal-agent model and its variants, explained that for decades foreign aid failed to achieve its goals because of incentive structures affecting agents' behavior in the aid delivery processes. They argued that most of the problems encountered in the aid business stem from two elements: one element is the fact that the beneficiaries of aid are not the same as the taxpayers in rich countries providing aid.…”

Section: Micro-institutional Approach and The Incentives To 'Move Thementioning

confidence: 99%

International donor agencies’ incentive structures and foreign aid effectiveness

Monkam

2012

Journal of Institutional Economics

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This paper examines in depth one of the potential causes of the low performance of foreign aid; in particular, the role incentive structures within international donor agencies could play in leading to 'a push' to disburse money. This pressure to disburse money is termed as the 'Money-Moving Syndrome' (MMS). The theoretical analysis in this paper relies on the principal-agent theory to explore how donor agencies' institutional incentive systems may affect the characteristics of an optimal and efficient incentive contract and thus give rise to the MMS. The basic framework of the principal-agent theory was innovatively adapted to fit the organizational settings of donor agencies. The model concludes that the extent to which a performance measure based on the amount of aid allocated within a specific period of time would lead to the MMS and affect aid effectiveness depends on the level of 'institutional imperatives', the degree of aid agency's accountability for effectiveness, the level of corruption in recipient countries and the degree of difficulty to evaluate development activities.

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“…Here they highlight two possible channels, as: (a) countries with weak institutions may be more susceptible to a negative impact of aid on tax collection (Azam, Devarajan and O'Connell 1999); and (b) aid may, as suggested above, affect tax performance indirectly through its effect on institutions and accountability (Knack and Rahman 2004, Amprou and Cottet 2006, Svensson,2006, Martens, Mummert, Murrell and Seabright 2002, Moore 2001, Moss, Roodman and Standley 2005. They correspondingly insert various measures of institutional and democratic quality into a standard tax effort regression and find that the impact of aid on tax effort is not affected by either corruption or democracy, but is affected by the quality of institutions.…”

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confidence: 90%