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On the Non‐Contractual Nature of Donor–Recipient Interaction in Development Assistance
Author(s) -
Murshed S. Mansoob
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.1467-9361.2009.00499.x
Subject(s) - incentive , principal (computer security) , task (project management) , quality (philosophy) , simple (philosophy) , microeconomics , mechanism design , economics , strategic interaction , mechanism (biology) , business , computer science , risk analysis (engineering) , law and economics , management , computer security , philosophy , epistemology
The author analyzes three issues in strategic donor–recipient interaction motivated by the complexity of the rationale underlying aid. The first is when we have several principals with conflicting objectives. Any one principal cannot offer high powered incentives to the agent to carry out his or her designated task. The second is to do with the fact that effort associated with ensuring aid effectiveness may concern both principal and agent, the optimal solution to which requires cooperative behavior that is difficult to design. Consequently, the contractual type principal–agent relationship between donors and recipients is inappropriate. We need to consider models that signal recipient quality or commitment to reform. Thus, thirdly, a simple model of signaling with commitment problems is presented, along with extensions to multiple types of agent and time periods, as well as possible solutions involving mechanism design.