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Foreign Aid in the Presence of Corruption: Differential Games among Donors
Author(s) -
Kemp Murray C.,
Long Ngo Van
Publication year - 2009
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.2009.00820.x
Subject(s) - economics , language change , differential game , differential (mechanical device) , pareto principle , flow (mathematics) , microeconomics , mathematical economics , operations management , mathematical optimization , mathematics , mechanics , physics , thermodynamics , art , literature
We consider two dynamic games of foreign aid. Model 1 deals with the case where donor countries continually feel the warm glow from the act of giving. Model 2 postulates that donors will stop giving aid when a target level of development is reached. In Model 1, there are multiple equilibria that can be Pareto ranked. In Model 2, the equilibrium strategies are nonlinear functions of the level of development. The flow of aid falls at a faster and faster rate as the target is approached. An increase in corruption will increase the flow of aid.