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The politics of special purpose trust funds
Author(s) -
Eichenauer Vera Z.,
Hug Simon
Publication year - 2018
Publication title -
economics and politics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.822
H-Index - 45
eISSN - 1468-0343
pISSN - 0954-1985
DOI - 10.1111/ecpo.12109
Subject(s) - unanimity , core (optical fiber) , incentive , voting , delegation , public economics , discretion , politics , aid effectiveness , economics , majority rule , international economics , microeconomics , business , political science , economic growth , developing country , computer science , management , law , telecommunications
Over the last decades, bilateral donors of foreign aid have increased their use of special purpose trust funds to provide earmarked aid to multilateral organizations. This paper investigates the incentives and consequences underlying this recent shift toward country‐ or theme‐specific funding and away from bilateral and multilateral aid. We propose a game‐theoretic model with multiple principals and a multilateral agent to study how the interaction between donor preferences, voter concerns in the donor country, the voting rules at the multilateral organization, and the presence of special purpose trust funds influences aid allocation. We show that multilateral organizations with majority rules are more likely to receive discretion and thus voluntary core contributions than those with unanimity requirements and that the possibility of earmarking multilateral aid decreases donors’ contributions to the multilateral's discretionary core budget and the amount of bilateral aid. In contrast to much of the literature dealing with issues of delegation and bi‐ and multilateral aid, our model suggests non‐monotonic effects of preference heterogeneity on the choice of aid channel for some parameter combinations when contributions to special purpose trust funds are an option.