Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/63459
Authors: 
Lin, Tun
Mavrotas, George
Year of Publication: 
2004
Series/Report no.: 
Research Paper, UNU-WIDER, United Nations University (UNU) 2004/60
Abstract: 
The present paper is a first attempt to develop a theoretical model using a short-term vis-à-vis long-term contract framework within which donor countries’ endorsement or rejection decision towards the recently proposed International Finance Facility (IFF) is rationalized. The current foreign aid system is portrayed as being similar to a series of short-term contracts, where donor countries are able to adjust the aid amount to reflect environmental change (broadly defined to take into account changes in public opinion, domestic situation, etc.). The benefit of this system is in its flexibility. Frontloading aid, on the other hand, as proposed by the IFF proposal, has the benefit of smoothing out the flows over time. In the model presented in this paper, donor countries balance these two contract schemes to determine the endorsement or rejection of the IFF proposal. By using historical aid data covering the period 1990-2003 for all DAC donor countries, our empirical analysis shows the payoffs and relative advantages of these two contract schemes.
Subjects: 
foreign aid
International Finance Facility
contract theory
uncertainty
JEL: 
F35
D81
ISBN: 
9291906557
Document Type: 
Working Paper

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