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Foreign Aid as Prize: Incentives for a Pro‐Poor Policy
Author(s) -
Sayanak Tejashree,
Lahiri Sajal
Publication year - 2009
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/j.1467-9361.2009.00498.x
Subject(s) - disbursement , welfare , incentive , economics , government (linguistics) , period (music) , public economics , international economics , microeconomics , finance , market economy , linguistics , philosophy , physics , acoustics
The authors develop a theoretical model of foreign aid to analyze a method of disbursement of aid which induces the recipient government to follow a more pro‐poor policy than it otherwise would do. In their two‐period model, aid is given in the second period and the volume of it depends on the level of well‐being of the target group in the first period. They find that this way of designing aid does increase the welfare of the poor. They also consider the situations where the donor and the recipient governments act simultaneously as well as sequentially, and they find that, by moving first in a sequential game, the donor country can, under certain conditions, increase the welfare of the poor and that of its own country compared to the case of simultaneous moves.