S-WoPEc
 
Scandinavian Working Papers in Economics
HomeAboutSeriesSubject/JEL codesAdvanced Search
Department of Economics, University of Bergen Working Papers in Economics, Department of Economics, University of Bergen

No 16/08:
Dancing the H-Street Waltz? Policy Choice in Aid-Dependent Countries

Rune Jansen Hagen ()

Abstract: A new aid rhetoric emphasises the selective allocation of otherwise unconditional funds in support of recipients drafting their own sensible plans, in contrast to the old practice of lumping money and policies together in donor-wrapped packages. This line of thinking is supported by both the empirical literature on aid conditionality as well as studies underscoring the need for tailoring policies and institutions to country characteristics. I study the signalling game that arises when recipients have private policy-relevant knowledge. I show that while real ownership might result from their strategic interaction with donors in such a regime, conformity in policy-choice is a de?nite possibility. The lure of generous aid might induce recipients to play to the sensibilities of outcome-oriented donors, making the latter con?dent of having sizeable impact even when the former thinks the result is less bang for the aid-buck. In extensions I explore what happens when the actors do not share a common view of how the economy works. When the recipient faces a biased donor, the scope for pooling (separation) is reduced (increased), indicating that "groupthink" is costly. When both actors have their own biases the range of equilibria is much wider. The recipient then sometimes ignores its private information not because it wants to deliver what the donor considers good news, but because it gambles on ending up with the highest possible aid-impact from its perspective. It is shown that donor coordination can, but need not, be bene?cial. Finally, if the donor cares about need as well as impact policy-making might improve with aid, but only for countries close to graduating from such external support.

Keywords: Aid; public policies; signalling; (follow links to similar papers)

JEL-Codes: F35; F55; F59; H11; (follow links to similar papers)

60 pages, March 23, 2011

Before downloading any of the electronic versions below you should read our statement on copyright.
Download GhostScript for viewing Postscript files and the Acrobat Reader for viewing and printing pdf files.

Full text versions of the paper:

No.%2016-08.pdf    PDF-file
Download Statistics

Questions (including download problems) about the papers in this series should be directed to Kjell Erik Lommerud ()
Report other problems with accessing this service to Sune Karlsson () or Helena Lundin ().

Programing by
Design by Joachim Ekebom

Handle: RePEc:hhs:bergec:2008_016 This page was generated on 2014-12-14 19:20:48