Introduction The Model Empirical Analysis Aid and Corruption: Do Donors Use Development Assistance to Provide the Right Incentives? Alessia Isopi 1 Fabrizio Mattesini 2 1 University of Nottingham, UK 2 University of Rome Tor Vergata, Italy A. Isopi and F. Mattesini Isopi and others Aid and Corruption: Do Donors Use Development Assistance to Provide the Right Incentives?
Introduction The Model Empirical Analysis Outline Introduction Motivation Existing Literature Purpose of the Paper The Model Set up The Players Solving the Model The Maximization Programs Equilibrium Contracts Theoretical Results Empirical Analysis Main Results A. Isopi and F. Mattesini Isopi and others Aid and Corruption: Do Donors Use Development Assistance to Provide the Right Incentives?
Introduction The Model Empirical Analysis Motivation Stylized Facts ◮ The Corruption Perception Index (2006) shows that almost 3/4 of developing countries experience a very high level of corruption; A. Isopi and F. Mattesini Isopi and others Aid and Corruption: Do Donors Use Development Assistance to Provide the Right Incentives?
Introduction The Model Empirical Analysis Motivation Stylized Facts ◮ The Corruption Perception Index (2006) shows that almost 3/4 of developing countries experience a very high level of corruption; ◮ Corruption not only affects the process of economic growth, but also encourage people to apply their skills and energies in non productive ways (Mauro,(1995)).; A. Isopi and F. Mattesini Isopi and others Aid and Corruption: Do Donors Use Development Assistance to Provide the Right Incentives?
Introduction The Model Empirical Analysis Motivation Stylized Facts ◮ The Corruption Perception Index (2006) shows that almost 3/4 of developing countries experience a very high level of corruption; ◮ Corruption not only affects the process of economic growth, but also encourage people to apply their skills and energies in non productive ways (Mauro,(1995)).; ◮ Corruption reduces also aid effectiveness both directly by diverting a percentage of aid from intended purposes or indirectly by promoting inappropriate uses of aid (See Cooksey (2003); A. Isopi and F. Mattesini Isopi and others Aid and Corruption: Do Donors Use Development Assistance to Provide the Right Incentives?
Introduction The Model Empirical Analysis Motivation Stylized Facts ◮ The Corruption Perception Index (2006) shows that almost 3/4 of developing countries experience a very high level of corruption; ◮ Corruption not only affects the process of economic growth, but also encourage people to apply their skills and energies in non productive ways (Mauro,(1995)).; ◮ Corruption reduces also aid effectiveness both directly by diverting a percentage of aid from intended purposes or indirectly by promoting inappropriate uses of aid (See Cooksey (2003); ◮ Do actually bilateral donors take the problem of corruption into account in their development policies? A. Isopi and F. Mattesini Isopi and others Aid and Corruption: Do Donors Use Development Assistance to Provide the Right Incentives?
Introduction The Model Empirical Analysis Literature Existing Literature ◮ Alesina and Weder (2002) show that for most donors corruption is not a significant explanatory variable in bilateral aid allocation and conclude that there is no evidence that less corrupt governments receive more foreign aid. A. Isopi and F. Mattesini Isopi and others Aid and Corruption: Do Donors Use Development Assistance to Provide the Right Incentives?
Introduction The Model Empirical Analysis Purpose of the Paper Purpose of the Paper The purpose of this paper is twofold: A. Isopi and F. Mattesini Isopi and others Aid and Corruption: Do Donors Use Development Assistance to Provide the Right Incentives?
Introduction The Model Empirical Analysis Purpose of the Paper Purpose of the Paper The purpose of this paper is twofold: 1. We provide new empirical evidence on the relationship between aid and corruption and on its changes over time; A. Isopi and F. Mattesini Isopi and others Aid and Corruption: Do Donors Use Development Assistance to Provide the Right Incentives?
Introduction The Model Empirical Analysis Purpose of the Paper Purpose of the Paper The purpose of this paper is twofold: 1. We provide new empirical evidence on the relationship between aid and corruption and on its changes over time; 2. Using a static principal-agent model of aid allocation, we provide a structural interpretation of this evidence, focusing on the role played by donors’ preferences and recipients’ incentives ; A. Isopi and F. Mattesini Isopi and others Aid and Corruption: Do Donors Use Development Assistance to Provide the Right Incentives?
Introduction The Model Empirical Analysis Purpose of the Paper Purpose of the Paper The purpose of this paper is twofold: 1. We provide new empirical evidence on the relationship between aid and corruption and on its changes over time; 2. Using a static principal-agent model of aid allocation, we provide a structural interpretation of this evidence, focusing on the role played by donors’ preferences and recipients’ incentives ; A. Isopi and F. Mattesini Isopi and others Aid and Corruption: Do Donors Use Development Assistance to Provide the Right Incentives?
Introduction The Model Empirical Analysis Set up Environment We analyze an optimal aid allocation procedure in an environment where: A. Isopi and F. Mattesini Isopi and others Aid and Corruption: Do Donors Use Development Assistance to Provide the Right Incentives?
Introduction The Model Empirical Analysis Set up Environment We analyze an optimal aid allocation procedure in an environment where: ◮ i) Donor beside the goal of helping the poor may also be conditioned by non altruistic motives ; A. Isopi and F. Mattesini Isopi and others Aid and Corruption: Do Donors Use Development Assistance to Provide the Right Incentives?
Introduction The Model Empirical Analysis Set up Environment We analyze an optimal aid allocation procedure in an environment where: ◮ i) Donor beside the goal of helping the poor may also be conditioned by non altruistic motives ; ◮ ii) Inefficiencies arise in the implementation of aid projects due to asymmetric information and moral hazard ; A. Isopi and F. Mattesini Isopi and others Aid and Corruption: Do Donors Use Development Assistance to Provide the Right Incentives?
Introduction The Model Empirical Analysis Set up The Recipient Country: Type I agents Type I agents , ( the elite ), owns the technology necessary to influence the outcome of the project; u e 0 = ( γ + b )[ π 0 θ f ( a ) + (1 − π 0 ) θ f ( a )] (1) if they undertake the bad action and u e 1 = γ [ π 1 θ f ( a ) + (1 − π 1 ) θ f ( a )] − ψ (2) if they undertake the good action. Note that π 1 > π 0 . A. Isopi and F. Mattesini Isopi and others Aid and Corruption: Do Donors Use Development Assistance to Provide the Right Incentives?
Introduction The Model Empirical Analysis Set up The Recipient Country: Type II agents Type II agents ,( the poor ), cannot influence the realization of the project. u p 0 = (1 − γ − b )[ π 0 θ f ( a ) + (1 − π 0 ) θ f ( a )] (3) if type I agents undertake the bad action and u p 1 = (1 − γ )[ π 1 θ f ( a ) + (1 − π 1 ) θ f ( a )] (4) if type I agents undertake the good action. A. Isopi and F. Mattesini Isopi and others Aid and Corruption: Do Donors Use Development Assistance to Provide the Right Incentives?
Introduction The Model Empirical Analysis Set up The Donor Country V d = E [ λ u e + (1 − λ ) u p ] − C ( a ) (5) where C ( a ) = δ a (6) A. Isopi and F. Mattesini Isopi and others Aid and Corruption: Do Donors Use Development Assistance to Provide the Right Incentives?
Introduction The Model Empirical Analysis Solving the Model Optimizing Choice The parameters of the model identify two possible optimizing behaviors: ◮ The donor can and/or wants inducing type I agents to undertake the high level of effort. In this case, we can distinguish between: ◮ a case where moral hazard is not a relevant issue; ◮ or a case where, being moral hazard relevant, the donor induces type I agents to undertake the high level of effort. A. Isopi and F. Mattesini Isopi and others Aid and Corruption: Do Donors Use Development Assistance to Provide the Right Incentives?
Introduction The Model Empirical Analysis Solving the Model Optimizing Choice ◮ The donor cannot and/or does not want to inducing type I agents to undertake the high level of effort. In this case, we can have: ◮ donors allow local elites to capture a large part of the aid flows for strategic or economic reasons; ◮ being donors concerned on the welfare of the poor, when they realize that aid transfers will never reach people in need, they might be better off denying funding to that particular recipient. A. Isopi and F. Mattesini Isopi and others Aid and Corruption: Do Donors Use Development Assistance to Provide the Right Incentives?
Recommend
More recommend
