EconStor >
Verein für Socialpolitik >
Ausschuss für Entwicklungsländer, Verein für Socialpolitik >
Proceedings of the German Development Economics Conference, 2009 (Frankfurt a.M.) >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/39948
  
Title:Moral Hazard and the Composition of Transfers: Theory with an Application to Foreign Aid PDF Logo
Authors:Ouattara, Bazoumana
Amegashie, J. Atsu
Strobl, Eric
Issue Date:2009
Series/Report no.:Proceedings of the German Development Economics Conference, Frankfurt a.M. 2009 24
Abstract:The paper presents a theoretical and empirical analysis of a donor’s choice of the composition of unrestricted and in-kind/restricted transfers to a recipient and how this composition is adjusted in response to changes in the moral hazard behavior of the recipient. In-kind or restricted transfers may be used, among others, to control a recipient’s moral hazard behavior but may be associated with deadweight losses. Within the context of foreign aid, we use a canonical political agency model to construct a simple signaling game between a possibly corrupt politician in a recipient country and a donor to illustrate the donor’s optimal choice of tied (restricted) and untied foreign aid. We clarify the condition under which a reduction in the recipient’s moral hazard behavior (i.e., improvement in the level of governance) leads to a fall in the proportion of tied aid. We test the predictions of our theoretical analysis using data on the composition of foreign aid by multilateral and bilateral donors.
Subjects:Moral Hazard
Foreign Aid
Panel Data
JEL:D73
F35
H87
I38
Document Type:Conference Paper
Appears in Collections:Proceedings of the German Development Economics Conference, 2009 (Frankfurt a.M.)

Files in This Item:
File Description SizeFormat
24_ouattara.pdf333.1 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/39948

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.