On the Delegation of Aid Implementation to Multilateral Agencies
Some multilateral agencies implement aid projects in a broad range of sectors, with aid disbursements showing a strong overlap with those of bilateral donors. The question then arises of why do bilateral donors delegate sizable shares of their aid...
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| Language: | English en_US |
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World Bank, Washington, DC
2015
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| Online Access: | http://documents.worldbank.org/curated/en/2015/10/25192585/delegation-aid-implementation-multilateral-agencies http://hdl.handle.net/10986/22870 |
| Summary: | Some multilateral agencies implement aid
projects in a broad range of sectors, with aid disbursements
showing a strong overlap with those of bilateral donors. The
question then arises of why do bilateral donors delegate
sizable shares of their aid to non-specialized agencies for
implementation? This paper develops a game theoretic model
to explain this puzzle. Donors delegate aid implementation
to the multilateral agency (ML) to strengthen the policy
selectivity of aid, incentivizing policy improvements in
recipient countries, in turn improving aid’s development
effectiveness. Bilateral donors are better off delegating
aid to ML even when they are purely altruistic but disagree
on how aid should be distributed across recipients. Key for
our result to hold is that ML searches some middle ground
among disagreeing donors. Aid selectivity—in terms of both
policy and poverty—emerges endogenously and is credible, as
it is the solution to ML’s optimization problem. Moreover,
the model shows that if one sufficiently large donor is
policy selective in its aid allocations, there is no need
for other donors to be policy selective. The World Bank’s
aid program for lower-income countries, the International
Development Administration (IDA), is shown to fit the
assumptions and predictions of the model. Specifically, IDA
is a dominant donor in most of its recipient countries and
is much more policy and poverty selective than bilateral
aid. Donors view it as a public good, and contribution more
to it when bilateral aid is less selective. Potential
threats to IDA’s role as a dominant, policy-selective donor
include the emergence of nontraditional donors, changes in
voting shares, and traditional donors’ increasing use of
earmarked contributions. |
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